Long-term interest rates are now unsustainably low, implying bubbles in the prices of bonds and other securities. When interest rates rise, as they surely will, the bubbles will burst, the prices of those securities will fall, and anyone holding them will be hurt.
A peculiar trading session, in which the usual overnight futures levitation has not been led by the BOJ-inspired USDJPY rise (even as the Nikkei225 rose another 0.6% more than offset by the Shanghai Composite drop of 0.86%), which actually has slid all session briefly dipping under 99 moments ago, but by the EURUSD, which saw a bout of buying around 5 am Eastern, just after news hit that the UK would avoid a triple dip recession with Q1 GDP rising 0.3% versus expectations of a 0.1% rise, up from a -0.3% in Q4 (more in Goldman note below).
Santiago de Compostela (Spain) (AFP) - German Chancellor Angela Merkel walked along the pilgrimage road to Santiago de Compostela on Sunday under bright sun in a highly symbolic show of unity with Spain and its arduous path to economic recovery.
Bond investors are struggling to find a decent yield in this low interest rate environment. U.S. ten-year Treasury notes currently yield about 2.5%, just slightly better than the just-less-than 2% inflation we've seen over the first half of this year. As a result, bond investors are left with only bad — or at least, suboptimal — options right now.
Goldman has slashed its forecasts for major government bond yields. Bond yields (which rise when prices fall and vice versa) in many Eurozone countries have tumbled into negative territory this year and US Treasury yields have also fallen, in contrast to most expectations.
Via Scotiabank's Guy Haselmann, For a long time, Fed printing via balance sheet expansion has been the key to understanding markets and the predominant driver that has trumped all other matters. Investors have been able to ignore significant global events, tensions, and economic conditions in faraway places, because a lower real and perceived risk premium from implicit Fed promises was the single most important aspect driving asset prices higher. This game is quickly coming to an end.
By Antonio Fatas:Not a great beginning of the week for the world economy. The week has started with more rumors about a Greek default, doubts on the French banks, weakness of the Euro and sharp falls in European stock markets during the first half of the day. Another recession? The beginning of a depression? We are going through a period of fatigue as markets, investors and companies seem to be waiting for good news coming from any of the advanced economies. But we only get bad news.
With the Trumpflation euphoria easing back slightly overnight, leading to a modest paring in the USD index and US Treasury yields, Asian and European stocks rose, while US equity futures rebounded to just shy of new all time highs, as crude jumped on renewed optimism that OPEC will agree to cut output; Italian equities underperformed ahead of the Italian referendum; metals rebounded from last week’s losses as yields dropped and the dollar halted its longest winning streak versus the euro.
ByAlexander Ineichen:The cardinal question for many investors is when interest rates will start to rise. Rising interest rates will change everything. At the moment, long-term interest rates are low; artificially low. Central banks have been slacking their monetary reins and buying bonds for a while; hence, the continued pressure on the yield curves and rising bond prices. Bonds are now arguably expensive.click to enlarge)