There were some minor fireworks in the overnight session following the worst Australian unemployment data in 12 years reported previously (and which sent the AUD crashing), most notably news that the Japanese Pension Fund would throw more pensioner money away by boosting the allocation to domestic stocks from 12% to 20%, while reducing holdings of JGBs from 60% to 40%.
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).
MUMBAI: Perpetual bonds, a product category long ignored by sophisticated investors, are in vogue these days. The well-heeled have been lapping up such bonds of public sector banks on hopes the yield differential vis-a-vis the 10-year benchmark government bond would shrink as the Reserve Bank of India cuts policy rates. In its purest form, a perpetual bond works like a life-time, irredeemable fixed deposit, with bond holders getting fixed coupon every year. In India, due to rate volatility, issuers fix a call option, which could be activated after five or 10 years, giving investors an exit.
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.
FRANKFURT/ BRUSSELS: The European Central Bank will accelerate the pace of money printing to buy government bonds over the next two months, one of its top officials said, while voicing concern about recent swings on bond markets. The comments from Benoit Coeure, initially made in private on Monday at a conference attended by one of Britain's richest hedge fund managers Alan Howard, some of his peers and academics, sent markets into a flurry when they were published on Tuesday.
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.
WASHINGTON — U.S. producer prices recorded their largest drop in three years in April as gasoline and food costs tumbled, pointing to weak inflation pressures that should give the Federal Reserve latitude to keep monetary policy very accommodative.
The Labor Department said on Wednesday its seasonally adjusted producer price index fell 0.7% last month, the biggest decline since February 2010. Wholesale prices had dropped 0.6% in March.
Good and bad news came out of the eurozone Thursday morning as Spanish unemployment rose more to the highest in at least 37 years, but Britain’s economy dodged a return to recession and grew faster than expected in the first three months of this year.
Spanish unemployment rose more than economists forecast in the first quarter as efforts to tackle the European Union’s biggest budget deficit crimped economic growth.