All a Fed Misunderstanding? Bonds Think Not

Bonds rose Thursday as the yield on the benchmark 10-year U.S. Treasury note briefly fell below the psychologically important 3 percent mark for the first time since September before ending around 3.03 percent. This was largely due to comments by Federal Reserve Chairman Jerome Powell a day earlier that interest rates are “just below” neutral, which traders took as a sign the central bank is close to ending the current rate-raising cycle. Given the strong track record of bond traders over many years, it’s hard to say they misunderstood what Powell said or was trying to say, but that didn’t stop a surprisingly large number of economists from trying to make the case they got it wrong.

Given the strong labor markets, “we run the risk of returning to 1970s-style unanchored wage inflation with an associated bear market in both bonds and equities” if the Fed doesn’t try to cool growth with more rate increases, Torsten Slok, Deutsche Bank’s chief international economist, wrote in a research note that was fairly typical. Perhaps, but bond traders are clearly more worried about signs of slower growth not just in the U.S. but globally, pushing 10-year yields down from more than 3.20 percent just three weeks ago. S&P Global Ratings said Thursday that it sees a 15 percent to 20 percent chance of a recession in the next 12 months, up from 10 percent to 15 percent. The International Monetary Fund downgraded its forecast for world growth last month, and Managing Director Christine Lagarde warned this week that the outlook might have become even worse. And rather than accelerating, inflation appears to be decelerating. Government data Thursday showed that the core personal consumption expenditures index, which is the Fed’s preferred measure of inflation, rose just 1.78 percent in October from a year earlier, the smallest increase since February.

All a Fed Misunderstanding? Bonds Think Not

It’s not just in the U.S. that confidence in higher interest rates is faltering. Bond and money market traders worldwide are reassessing the pace of monetary policy tightening amid signs global growth is sputtering, according to Bloomberg News’s Stephen Spratt. The European Central Bank’s long-anticipated rate increase is looking less likely, while the probability of moves in Canada and Australia have been pushed back. It has been more than 24 hours since Powell’s speech, giving  bond traders more than enough time to parse the comments. It’s not that they misunderstood him, but rather understood quite well.

U.S. stocks were unable to complete their first four-day rally since September. But more important, remember when the big corporate tax cuts pushed through by the Trump administration at the end of 2017 were supposed to unleash a flood of economic activity not only this year but well into the future? The cynics said companies would just use the savings not for building plants and buying equipment to expand but rather to reward shareholders through dividends and stocks buybacks. It turns out the cynics were right. Companies in the S&P 500 Index have paid out an aggregate $420.7 billion to shareholders as dividends this year, beating the record full-year total of $419.8 billion for 2017, according to Bloomberg News’s Richard Richtmyer, citing data from S&P Global Ratings. As for capital spending, nonresidential business investment rose just 2.5 percent in the third quarter, the smallest increase since the final three months of 2016, according to Bloomberg News’s Shobhana Chandra and Liz Capo McCormick. That leads to a big question regarding equities markets: Can stocks can really rebound if companies are not showing much confidence in the outlook for their businesses and industries? After all, rising dividends and buybacks won’t boost valuations. Canaccord Genuity equity strategist Tony Dwyer, who previously forecast the S&P 500 ending next year at 3,360, compared with around 2,738 at Thursday’s close, has said he’s reconsidering that view. As of Wednesday, strategists on average expected the S&P 500 to reach 3,052 by the end of next year, according to 12 estimates tracked by Bloomberg.

All a Fed Misunderstanding? Bonds Think Not

Trading currencies is hard, probably more so than anything else in financial markets. For proof, just look at the Citi Parker Global Currency Index, which tracks nine distinct foreign-exchange investment styles. The measure was down 1.99 percent in November through Wednesday, heading for its worst monthly loss since June 2015. The index is now down 3.60 percent for the year, virtually guaranteeing a fourth consecutive annual decline. In an increasingly globalized economy, the old textbooks that once taught how exchange rates were largely set by interest-rate differentials among countries and trade flows are largely irrelevant. Now, there is a seemingly infinite number of variables that traders must consider, including equity flows, direct investment, valuations and investor sentiment, GAM Holding AG group chief economist Larry Hatheway wrote in a Bloomberg Opinion piece earlier this year. As for November, many currency traders may have gone wrong by betting on gains in the Swedish krona, British pound and New Zealand dollar and losses in the Argentine peso, Russian ruble and Colombian peso. Instead, the krona, pound and so-called kiwi were the biggest losers against the dollar while the two pesos and the ruble were the biggest gainers. Then there’s the dollar. The consensus has been for big gains as the Fed was sounding very hawkish coming into November, but instead the Bloomberg Dollar Index is poised for its first losing month since July as policy makers seem to be leaning a bit dovish.

All a Fed Misunderstanding? Bonds Think Not

This time last month it looked as if India’s financial markets were about to spark a global financial crisis. Officials were so desperate to stop the rupee’s free fall that Prime Minister Narendra Modi’s government was considering tapping Indians living overseas to lure foreign-exchange flows and prop up the sagging currency. Now, the rupee is enjoying its best gain since the start of 2012, appreciating almost 6 percent, while the S&P BSE Sensex of equities has gained some 5 percent. Much of this has to do with the collapse in the price of oil, as India is a large importer of crude. As such, not everyone is convinced the rally can last, especially with key Indian states voting in polls that may be a preview of next year’s national election and a referendum on Modi. The central state of Madhya Pradesh may be most emblematic of the national vote out of the five states holding elections, according to Bloomberg News. The incumbent administration led by Modi’s Bharatiya Janata Party must overcome a lack of job creation and farmers’ discontent to retain power, while the opposition is struggling to forge a coalition and raise enough money to campaign. “The positive momentum may not continue for long as investors will start factoring in the outcome of elections as different states go to polls,” A.K. Prabhakar, head of research at IDBI Capital Market Services Ltd. in Mumbai, told Bloomberg News. “The current rally is providing a good exit.”

All a Fed Misunderstanding? Bonds Think Not

Hogs were the big winner in the commodities market on Thursday. Hog futures jumped almost 4.50 percent amid a report that China, the world’s top pork consumer, faces an outbreak of African swine fever and has culled about 600,000 hogs to curb the spread of the disease. An outbreak has been confirmed in 20 provinces and 47 cities since the first reports in August. This is good news for certain American farmers as U.S. pork sales to China surge back to levels before tariffs were introduced. China was the third-largest buyer of pork in the U.S. Department of Agriculture’s weekly data released Thursday. The 3,300 metric ton-purchase was the most since February, a month before China imposed tariffs on U.S. pork, according to Bloomberg News’s Lydia Mulvany and Megan Durisin. “This is a game changer,” said Dennis Smith, a senior account executive at Archer Financial Services Inc. “It gives confirmation that the disease is far worse than what we’ve been told.” Until now, China has abstained from increasing its imports from the U.S. Unfortunately, hogs are a rare bright spot in the markets for raw materials. The Bloomberg Commodity Index, which tracks everything from energy prices to base metals to agriculture products, is down 0.65 percent for November, bringing its loss for the year to a little more than 6 percent. That’s largely due to the collapse in oil prices and declines in the prices of things such as copper, aluminum, soybeans and sugar amid the slowing global economy and an intensifying trade war between the U.S. and China.


Lodha $ bond yield surges in shallow market


ET Intelligence Group: The prices of dollarNSE 1.30 % denominated bonds issued by Lodha Developers overseas have fallen sharply from $104.13 on August 29,2018 to $88.14 now. They now trade at 23 per cent yield-to-maturity (YTM), leaving markets wonder whether the international bond holders are contemplating stress in the company’s operations amid sluggishness in the Indian realty sector and weakness in the rupee against the dollar.

A fall in bond prices may also reflect low liquidity co ..


EUR/USD: Focus on Italian bonds and Draghi speech

  • The EUR fell below the 20-day SMA on Friday, signaling the recovery rally has likely ended.
  • The pair may pick up a bid today if Italian government bond yields continue to rise despite lingering budget tensions.
  • The investors will pay attention to what Draghi says about the Eurozone economy, interest rates and Italy.

The EUR/USD closed well below the 20-day simple moving average (SMA) on Friday, signaling the recovery rally from the recent low of 1.1415 has likely found a temporary top at 1.1472.

Further, the spot hit a ten-day low of 1.1326 in Asia, validating the Friday’s bearish close below the 20-day SMA.

Friday’s losses, however, could be erased if the spread between the Italian 10-year government bond yield and its US counterpart continues to narrow.

It is worth noting that the European Commission (EC) initiated excess deficit procedures against Italy last week after the nation refused to substantially alter its budget proposals. The bond yield spread, still, eased to 307 basis points on Friday – down 20 basis points from last high of 327 bps reached last Tuesday.

The common currency may also pick up a bid if ECB’s Draghi while speaking in the European Parliament, downplays the recent slowdown in the German economy and risks arising out of the Italian budget crisis. The gains, however, could be moderate as the central bank President is also expected to reiterate that rates would remain low for some time after the asset purchases are complete.

 EUR/USD Technical Levels


Today Last Price: 1.1338
Today Daily change: 8.0 pips
Today Daily change %: 0.0706%
Today Daily Open: 1.133
Previous Daily SMA20: 1.1366
Previous Daily SMA50: 1.1488
Previous Daily SMA100: 1.1548
Previous Daily SMA200: 1.1791
Previous Daily High: 1.1422
Previous Daily Low: 1.1328
Previous Weekly High: 1.1473
Previous Weekly Low: 1.1328
Previous Monthly High: 1.1625
Previous Monthly Low: 1.1302
Previous Daily Fibonacci 38.2%: 1.1364
Previous Daily Fibonacci 61.8%: 1.1386
Previous Daily Pivot Point S1: 1.1298
Previous Daily Pivot Point S2: 1.1266
Previous Daily Pivot Point S3: 1.1204
Previous Daily Pivot Point R1: 1.1392
Previous Daily Pivot Point R2: 1.1454
Previous Daily Pivot Point R3: 1.1487


RBI Board Member Says Banks Could Be Recapitalised With Government Bonds

RBI Board Member Says Banks Could Be Recapitalised With Government Bonds

Banks could be recapitalised with government bonds, said an independent director on the central bank’s board on Thursday, at a time when the Reserve Bank of India and the government are at loggerheads on regulatory issues. S Gurumurthy has been a vocal member on the RBI board asking for easier lending and capital restrictions for the country’s banks and more cash for small businesses, a view that is supported by top finance ministry officials and has deepened an ongoing rift between the government and the central bank.

One way for the government to increase capital adequacy in state-run banks under Basel 3 regulations is to increase equity capital on one hand and sell sovereign bonds to the lenders on the other hand.

The move won’t need actual cash infusion but only an accounting entry in banks, a process which has been used before as well by the government to increase capital adequacy ratios in banks.

For weeks, government officials in Delhi have been pressuring the Mumbai-based RBI to accede to a range of demands, prompting RBI Deputy Governor Viral Acharya to warn late last month that undermining a central bank’s independence could be “catastrophic,” bringing the feud into the open.

However, the government and the RBI are now getting close to ironing out some of their policy differences ahead of a board meeting on Monday.

Mr Gurumurthy called for heavy import curbs on items to contain the country’s current account deficit. He while speaking at an event in New Delhi


How to invest in Britain: From shares that look cheap, to bonds and property funds offering decent returns

On the stock market, it can sometimes pay to be ‘greedy when others are fearful’ – so go the famous words of Warren Buffett, the octogenarian chairman of US conglomerate Berkshire Hathaway and one of the world’s most famous investors.

Fearful is exactly what many investors and business executives are about Brexit and its supposed impact on the UK. Almost every day brings a grim warning about the possible consequences of ‘no deal’.

Could it be that investors are currently too fearful and that there are opportunities for those brave enough to take a different view?

FLAG FLYING : Luxury car maker Aston Martin floated on London Stock Exchange, last month

FLAG FLYING : Luxury car maker Aston Martin floated on London Stock Exchange, last month

The pound famously fell heavily on referendum results day and it remains 20 cents, or 13 per cent, down against the dollar. Less well-known is that the UK stock market has also found it hard going.

For instance, in the past year, the FTSE 100 index has underperformed the US S&P 500 Index by 13 per cent and the MSCI World Index by 7 per cent.

Russ Mould, investment director at broker AJ Bell, sums it up: ‘The UK’s stock market has three things going for it. It is unloved after a period of poor performance relative to its global peers. It is potentially cheap because it is unloved. And its currency is cheap.’

For investors who decide this might be the moment to bag a bargain, where can they find the best of British?


Bond Buyers Back Italy on Hope Political Risks Are Just Noise

The euro area’s highest investment-grade bond yields are simply too good to pass for some investors even as another round of dust-up between Italy and European Union looms large this week

M&G Investments is dipping back into Italian short-dated debt, while BlueBay Asset Management LLP has a long position in the securities known as BTPs. The near doubling of yields since the start of the year has also tempted retail investors back into the market, who tend to hold the bonds until maturity, according to the nation’s debt agency head Davide Iacovoni.

That’s despite an ongoing standoff with the EU, which saw the bloc dismiss Rome’s budget targets as overly optimistic. While Italy has until Tuesday to submit a revised version of its spending plans, the government has signaled it won’t bow to pressure from Brussels.

A pullback in Italy’s yield premium over Germany suggests the market is soft-pedaling the risk of populist politics in Rome destabilizing the EU, not least because similar fears have already played out from France to Greece in recent years with little long-term consequence. Past episodes of euro-breakup anxiety were typically resolved by last-minute compromises, and that may be fueling market expectations for a similar outcome to the ongoing Italian imbroglio.

While there’s no sign yet of an end to tensions with the bloc, that still doesn’t justify yields as high as they are, according to BlueBay.

“It’s been quite a rough and at times painful ride, but we still do think that we have the mispricing of Italian EU-exit risk,” David Riley, chief investment office at BlueBay, told Bloomberg TV last week.

‘More Attractive’

Investors are also looking to take advantage of a rare period of stability in Italian bonds, which have been rocked this year after euroskeptic political parties rose to power. S&P Global Ratings and Moody’s Investors Service both stopped short of downgrading the nation to junk last month, supporting investor confidence for the time being.

Wolfgang Bauer, who co-manages the M&G Absolute Return Bond Fund for the U.K. investment house that oversees 286 billion pounds ($368 billion), sold most of his Italian bond holdings in February and March this year and has only just started to re-enter the market. His colleague Richard Woolnough has recently invested 1 percent of his M&G Optimal Income Fund portfolio in short-term BTPs after exiting peripheral euro-area debt in May.

“The risk-reward profile is now more attractive,” Bauer said at a presentation in Milan, Italy. “Even in the worst case scenario — a euro exit — it’s very unlikely that will be done in two years.”

Rising Costs

Italian 10-year bond yields rose one basis point to 3.41 percent Monday, little changed this month. That compares with similar rates of 0.39 percent in Germany, 0.77 percent in France, 0.12 percent in Japan and 1.45 percent in the U.K. The spread over bunds was 302 basis points, down from as wide as 341 basis points on Oct. 19. Still, the gap has almost doubled from the end of last year.

This year’s surge in yields is boosting borrowing costs for Italy, one of euro zone’s most indebted economies. Debt-funding expenses for next year will rise by about 5 billion euros compared with the end of 2017, based on the seven-year weighted average maturity of its debt and the 175 basis point increase in seven-year yields in the secondary market this year.

Italy will auction bonds maturing in 2021, 2025 and 2038 Tuesday as well.

‘Big Problem’

Other investors are still more skeptical. OppenheimerFunds Inc. money manager Alessio de Longis is positioning for European political risk by buying the Japanese yen versus the euro. Alongside Italy, he cited the withdrawal of European Central Bank stimulus and slowing economic growth in the region as other reasons to be bearish.

“This is a way we are expressing euro-specific discomfort with respect to some of the developments that could occur with Italy,” said de Longis, who helps oversee $2 billion in New York. He is targeting 124 yen per euro, from around 130 currently. “Italy is a big problem – that is not going to go away.”

While Italian bonds may seen more volatility due to simmering Rome-Brussels tensions, both sides are eventually likely to reach a compromise in the longer run, according to HSBC Holdings Plc.

Further disagreement between the two sides is already “widely expected” by the market and there is still scope for improvement in sentiment toward Italian bonds, according to Mizuho International Plc.

“We’re not expecting much of a sell-off in BTPs beyond a short term ‘knee-jerk’ reaction,” strategists Peter Chatwell and Antoine Bouvet wrote in a note to clients last week. They recommended buying five-year bonds versus their two- and eight-year peers


Budget 2018: Premium Bond minimum to be lowered to £25

The minimum amount you can save in Premium Bonds will be cut to £25, and people other than parents and grandparents will be able to gift bonds to children, the Chancellor has announced.

Currently the minimum amount you can save is £100 (or £50 by standing order), but this will be cut to £25 by the end of March 2019 – for both one-off purchases and regular savings.

The maximum Premium Bond holding will remain at £50,000.

Additionally, adults other than parents and grandparents will be able to purchase bonds for children under 16, though National Savings & Investments (NS&I) hasn’t given a timescale for this yet.

The person purchasing the bonds for children will have to be over 16, and must nominate one of the child’s parents or guardians to look after the bonds until the child turns 16.

NS&I will also launch a new Premium Bonds app in the new year ‘to make saving easier