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Tag Archives: ECB

16/7/19: Corporate Yields are Heading South in the Euro Land

Some of the euro area's junk-rated corporate debt is now trading at negative yields, and over 15% of near-junk debt is also charging the lenders to provide cash to financially weaker companies: Source: WSJ While the overall stock of negative yielding debt (sovereign and corporate) is now nearing $13.5 trillion worldwide: Source: Bloomberg All in 51 percent of all European Government bonds are trading at negative yields, and just over 30 percent of all investment grade corporate bond...

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What to Watch if Fed and ECB are Committed to Easing

There is little doubt after the Federal Reserve Chairman Powell's testimony last week and the FOMC minutes that a rate cut will be delivered at the end of the month.  Similarly, after comments by several ECB officials and the record of their recent meetin.g confirms it too is prepared to adjust policy.  The timing of the ECB's move is more debatable, an adjustment at the July 25 meeting appears to have increased.  While a debate over what officials should do, often swamps...

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Powell Spurs Equity and Bond Market Rally, While the Greenback Falls Out of Favor

Overview:  Fed's Powell confirmed a Fed rate cut at the end of this month by warning that uncertainties since the June FOMC had "dimmed the outlook" and that muted price pressures may be more persistent.  It ignited an equity and bond market rally (bullish steepening) while the dollar was sold. The MSCI Asia Pacific Index rose for the second session, led by gains in South Korea and Hong Kong.  Benchmark 10-year yields have slipped lower, with the Asia Pacific and core European yields...

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In Bizzaro Beauty Contest, the US is Still the Least Ugly

Our hypothesis that the market had reached peak dovishness toward the Fed remains intact after the employment data.  Job growth was the strongest since January.  The participation rate and the unemployment rate ticked up. Average hourly earnings edged 0.2%  higher, and, with revisions, maintained a 3.1% year-over-year pace, which is a bit disappointing.   The jobs report trumps the PMI/ISM data and suggests that although the economy slowed in Q2, the sky is not falling.  There is no...

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Yields Extend Decline

Overview: Interest rates are lurching lower.  The US 10-year yield is at new two-year lows, but the driver is European bonds where peripheral yields are 6-7 bp lower,  though Italy's benchmark is off 12 bp, while core yields are down 2-3 bp to new record lows.  The German benchmark is almost minus 40 bp, while the Swiss 10-year is beyond minus 100 bp.  Italy's two-year is breaking more convincingly below zero.  The nomination of Lagarde to replace Draghi is seen as likely continuing the...

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24/6/19: Markets Expect the Next QE Soon…

Adding to the previous post on the negative yielding debt, here is a recent post from @TracyAlloway showing Goldman Sachs' chart on implied probability of the U.S. Fed rate cuts over the next 12 months: Source of chart: https://twitter.com/tracyalloway/status/1141895516801732608/photo/1.The rate of increases in the probability of at least 1 rate cut is staggering (as annotated by me in the chart). These dynamics directly relate to falling sovereign debt yields (and associated declines in...

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24/6/19: Negative Yielding Debt: Monetary Contagion Spreads

Negative yielding Government debt (the case where investors pay the sovereign lenders for the privilege of lending them funds) has hit all-time record (based on Bloomberg database) last week, at 13 trillion. Source of charts: https://www.bloomberg.com/amp/news/articles/2019-06-21/the-world-now-has-13-trillion-of-debt-with-below-zero-yields.Quarter of all investment grade corporate debt is now also yielding negative payouts (note: bond returns include capital gains, so as yields fall,...

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Still Patient?

Overview:  Risk-taking was bolstered by the dramatic shift in Draghi's rhetoric less than two weeks after the ECB meeting and a Trump's tweet announcing that there was going to be an  "extended" meeting between him and Xi at the G20 meeting and that the respective staff would begin coordinating.  It was later confirmed by the Chinese media.  Today's focus is on the FOMC.  Barring a rate cut that would surprise, the focus is the extent to which the statement and Powell manage market...

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Europeans First to Reverse: Draghi Warned Draghi Seventeen Months Ago

It wasn’t the basis for rational analysis, it was a very public admission of bias and error. We don’t know why inflation ultimately will do what we believe it will, they said, we just believe that it will so you should, too. It sounds ludicrous, but it is actually very much in keeping with standard Economics. The puppet show. What Mario Draghi said toward the end of January 2018 was: The strong cyclical momentum, the ongoing reduction of economic slack and increasing capacity utilisation...

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