Archives of “bond market” tag

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China is closing gap with United States on research spending

  
  Analysis
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China’s central bank said it will inject 1.2 trillion yuan ($173.8 billion) worth of liquidity into the markets via reverse repo operations on Monday, as the country prepares to reopen its stock markets amid a new coronavirus outbreak.

China’s authorities have pledged to use various monetary policy tools to ensure liquidity remains reasonably ample and to support companies affected by the virus epidemic, which has so far claimed 305 lives, all but one in China.

The People’s Bank of China made the announcement in a statement published on its website on Sunday, adding the total liquidity in the banking system will be 900 billion yuan higher than the same period in 2019 after the injection.

According to Reuters calculations based on official central bank data, 1.05 trillion yuan worth of reverse repos are set to mature on Monday, meaning that 150 billion yuan in net cash will be injected.

Investors are bracing for a volatile session in Chinese markets when onshore trades resume on Monday after a break for the Lunar New Year which was extended by the government.

China’s stock, currency and bond markets have all been closed since Jan. 23 and had been due to reopen last Friday. (more…)

Italian bonds surge higher on Salvini defeat

  
  Analysis
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Italy 10-year bond yields down by over 15 bps to start the day

Italy 10-year yields

  • Italy’s Democrats defeat Salvini’s league in key regional vote
Chances of a snap election is less likely now and that is giving more confidence to Italian assets to kick start the week. Just be reminded that Salvini is the number euroskeptic figure in the country and the result above will bolster Conte’s government a bit more.
The more positive take on the move in Italian bonds today is better reflected in the BTP/Bund spread, where we’re see a significant narrowing in the spread today (141 bps now):
Italy Germany spread

European shares close lower on China virus concerns

  
Analysis, Global Indices
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German DAX unchanged

The coronavirus concerns have sapped upside momentum from European shares. The falls come despite economic data out of Europe that was not bad.   UK employment data was strong and German/EU ZEW sentiment data was also better-than-expected.

The provisional closes are showing:
  • German DAX, unchanged
  • France’s CAC, -0.54%
  • UK’s FTSE 100, -0.57%
  • Spain’s Ibex, -0.57%
  • Italy’s FTSE MIB, -0.6%
In the European debt market, the benchmark 10 year yields are ending mostly lower with Italian yields up marginally.  France’s 10 year yield move back toward the 0.0% level. The low reached 0.001%.
German DAX unchanged_
In other markets,
  • gold slid earlier to a low price of $1546.41, but has rebounded and currently trades at $1557.19. That’s down about $3.50 or -0.23%
  • WTI crude oil futures are down $0.25 or 0.43% of $58.29
In the US stock market the NASDAQ index turned positive after opening lower and traded to it a new all-time high.
The current prices are showing:
  • S&P index -3.04 points or -0.09% 3326.60
  • NASDAQ index +5.068 points or 0.06% at 9394.20
  • Dow industrial average -41.7 points or -0.14% at 29306.64
In the US debt market yields are lower led by declines in the 10 year yield up -4.6 basis points. The yield curve is also flattened with the 2 – 10 spread falling to 23.74 basis points from 26.23 basis points on Friday..

20 risks to markets in 2020 – Use them to make profit

  
  Analysis
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Watch out for those risks

What exactly are the risks to the markets that you should pay attention to? The chief economist of Deutsche Bank Torsten Slok has prepared a list of top 20 risks to global markets in 2020. Each one of them may trigger a downtrend.

  1. Continued increase in wealth inequality, income inequality and healthcare inequality.
  2. Phase one trade deal remains unsigned, continued uncertainty about what comes after phase one.
  3. Trade war uncertainty continued to weigh on corporate capex decisions.
  4. Ongoing slow growth in China, Europe and Japan Triggering significant US dollar appreciation.
  5. Impeachment uncertainty & possible government shutdown.
  6. US election uncertainty; implications for taxes, regulation and capex spending.
  7. Antitrust, privacy and tech regulation.
  8. Foreigners lose appetite for US credit and US Treasuries following Presidential election.
  9. MMT-style fiscal expansion boosts growth significantly in US and/or Europe.
  10. US government debt levels begin to matter for long rates.
  11. Mismatch between demand and supply in T-bills , another repo rate spike.
  12. Fed reluctant to cut rates in an election year.
  13. Credit conditions tighten with more differentiation between CCC and BBB corporate credit.
  14. Credit conditions tighten with more differentiation between CCC and BBB consumer credit.
  15. Fallen angels: More companies falling into BBB. And out of BBB into HY.
  16. More negative-yielding debt sends global investors on renewed hunt for yield in US credit.
  17. Declining corporate profits means fewer dollars available for buybacks.
  18. Shrinking global auto industry a risk for global markets & economy.
  19. House price crash in Australia, Canada and Sweden.
  20. Brexit uncertainty persists.

The bond market isn’t feeling too upbeat on trade talks

  
  Analysis
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Treasury yields fall across the curve to session lows

USGG10YR

10-year yields are down by 2.5 bps to 1.644% as yields slip across the curve to start the European morning. While equities are holding higher, the bond market is sending a different signal with regards to positioning ahead of the trade talks outcome.
Essentially, this is what is holding yen pairs back from moving higher on the day with USD/JPY still seen near flat levels at 108.00.
Markets are mixed and a bit paralysed at the moment as everyone is just waiting to see what happens to talks in Washington later today. I reckon that will remain the case ahead of North American trading before we get more trade headlines to work with.

Roubini sounds alarm on bond market 'vigilantes'

  
Analysis, Economy, Education
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The United States may fall victim to bond “vigilantes” targeting indebted nations from the United Kingdom to Japan in a potential second stage of the financial crisis, New York University professor Nouriel Roubini said.

“Bond market vigilantes have already woken up in Greece, in Spain, in Portugal, in Ireland, in Iceland, and soon enough they could wake up in the UK, in Japan, in the United States, if we keep on running very large fiscal deficits,” Roubini said at an event at the London School of Economics. “The chances are, they are going to wake up in the United States in the next three years and say, ‘this is unsustainable.'”

The euro has touched a four-year low against the dollar on concern nations with the largest budget deficits will struggle to meet the European Union’s austerity requirements. Roubini, speaking in a lecture hall packed with students who then queued to meet him at a book-signing, suggested that the public debt burden incurred after the banking panic of 2008 may now cause the financial crisis to metamorphose.

“There is now a massive re-leveraging of the public sector, with budget deficits on the order of 10 percent” of gross domestic product “in a number of countries,” Roubini said. “History would suggest that maybe this crisis is not really over. We just finished the first stage and there’s a risk of ending up in the second stage of this financial crisis.”

The US posted its largest April budget deficit on record as the excess of spending over revenue rose to $82.7 billion. The federal debt is currently projected to reach 90 percent of the economy by 2020.

Roubini, who predicted in 2006 that a financial crisis was imminent, said that the record US budget deficit may persist amid a stalemate in Congress between Republicans blocking tax increases and Democrats who oppose cuts in spending.

“In many advanced economies, the political will to do the right thing is constrained,” he said.

Roubini reiterated that the euro region faces the threat of a breakup after the Greek budget crisis. The European Union said on Tuesday it transferred the first instalment of emergency loans to Greece, one day before 8.5 billion euros ($10.4 billion) of bonds come due.

“Even today there is a risk of a breakup of the monetary union, the euro zone as well,” Roubini said.

“A double dip recession in the euro zone” is “something that’s not unlikely, given what’s happening.”

Spain Sells 3 Year Bonds At 3.717%, 119 bps Higher Than Prior Auction

  
Analysis, Education
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For a demonstration of the unsustainable course that European sovereign funding is on, look no further than Spain, where earlier the government auctioned off €2.468 billion in three year notes for a whopping 3.717%. The bid to cover was 2.27 compared to 2.16 in October, and it was reported that foreign buyers bid above 60% of the auction (which means the ECB funded domestic banks bought about 40%). However, the same issued priced at 2.527% at the last sale on Oct. 7, a 119 bps difference. Still it wasn’t all bad, considering the bond had traded at almost 4% in recent days. As Reuters reports: “Analysts and bond market players had predicted a leap of as much as 2 percentage points in yields, but Madrid’s situation has been helped by mounting expectations the European Central Bank will step up extraordinary measures to contain the crisis.” The problem for Spain is that it has minimized the amount of debt it is issuing during turbulent times: “The Treasury had cut the amount of bonds on offer in order to trim financing costs as it faces down market doubts on whether it can bring down its deficit due to sluggish economic growth and persistent concerns it might need to bailout its debt-laden banks.” And the problem for the ECB is that it most likely, as many analysts are predicting, will not announce anything of substance, as otherwise the ECB will have to monetize up to €1.5 trillion in total debt and interest through the end of 2011. The result for the EUR will inevitably be disastrous in either case, and if in 25 minutes JCT indeed announces nothing, look for all those who bid up the bond auction earlier to be tearing out their hair as the 3 Year promptly passes 4%.

The Three Kinds Of People That Hate Warren Buffett

  
  Education
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1. Conspiracy theorists who can’t let go of the fact that one of the world’s richest men probably has some advantages and influence that others don’t have. To which I say grow the f— up, this is how the world works, read a book about the Roman Empire or the Renaissance or even the elitist philosophy of Confucianism circa 500 BC. Did not Nathan Mayer Rothschild have runners and messengers in boats speeding word to him of Napoleon’s defeat at Waterloo? And did he not engineer a panic on the London bond market, first dumping consols and then scooping up everyone else’s before the official news arrived at the marketplace? Did Buffett’s viewpoint on rescuing the banks weigh on the TARP vote? Probably. Maybe. But it’s not like Warren made it a secret that he was expecting this outcome. The New York Times op-eds about betting on America might have been your first clue, Sherlock.

2. Hardcore right-wingers and libertarians who are incensed at Buffett’s ideas about making the tax system more progressive and eliminating absurd loopholes like carried interest. They also despise Buffett’s general views on the government’s role in capitalism, his support for President Obama and his photo ops with Jay-Z. They’ll impugn the man’s business and investing record when they can find no rational arguments against the Buffett advocacy for smarter and more equitable tax laws. They’ll call him a hypocrite and slime him for his investments in banks and derivatives. But it’s about politics, they can’t see past it. And they’ll never bring up his charitable contribution of just about the entire fortune he’s amassed. (more…)

Goldman Capitulates: Lowers GDP Forecast, Increases Unemployment And Inflation Outlook, Sees Imminent QE "Lite"

  
  Education
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It’s official: the double dip is here. Goldman’s Jan Hatzius just lowered his GDP forecast for 2011 from 2.5% to 1.9% (kiss goodbye all those 93 EPS estimates on the S&P), increased his unemployment forecast from 9.8% to 10.0%, boosted his inflation expectation from 0.4% to 1.0%, and said that QE lite is now on the table, as he expects that “the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday’s meeting.” Look for all other sell-side “strategists” (here’s looking at you Neil Dutta) to lower their economic outlook in kind, and the 2011 S&P consensus to decline accordingly.

From Goldman Sachs:

 
 

Over the past two to three months, the US economic recovery has lost a considerable amount of its momentum.   As a result, our forecast of a significant slowing in US growth in the second half of 2010—widely regarded as implausible just three months ago—is now increasingly accepted as the baseline.  As the data disappointments intensified in early July, we indicated that we would consider revisions to our economic outlook.  With the annual revisions to real GDP now behind us, we are making the following changes: (more…)

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