Biggest Yearly Rally for Treasuries Since 2011 by Jason Galanis

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By Jason Galanis

The eve of the year’s end is here—and, as everyone else prepares for the holiday rush, savvy traders are finishing up their last minute exchanges amid the final week of the trading year. Both Treasury notes and bonds are set to see their last round of trades for 2014 this week, and much of the activity in the U.S. bond market took place this past Monday.

Monday, Treasury bonds retreated lower amid the final round of U.S. government bond auctions for the year.

Recent trading saw the benchmark 10-year note yield reach 2.183 percent, higher than Friday’s 2.178 percent yield. Remember: when bond prices fall (or, in this case, retreat), their yields rise.

Jason Galanis: "Will 2015 be as strong of a year for the US Treasury market?"

Jason Galanis: “Will 2015 be as strong of a year for the US Treasury market?”

Early Monday afternoon saw the biggest trade of the market’s close take place. The U.S. government, at the time, auctioned off $27 billion worth of 2-year Treasury notes.

The auction was the first leg of their $104 billion worth of new Treasury debts planned for auction throughout much of the open week. Many of those debts are offered in maturities spanning two years to seven years.

The new bond sales are essentially the ‘icing’ on an already sweet year for U.S. government bonds. The relatively stability of these government debts made them very attractive to investors throughout 2014, setting them on pace in their strongest year since 2011.

Demand caused the 10-year note’s price to rise, taking yields down pass the 3 percent benchmark from the start of the year.

Investors also saw good returns through this year—the best since 2011. Treasury bonds returned as much as 4.91 percent this year.

Although some trading is expected to close out the week, most traders expect much of its normally frenetic activity to quell as the holiday break kicks in. Many traders naturally take time away from the market, also causing lower market liquidity that may make bond price changes look more ‘exaggerated’ than they usually look.

Market observers expect new Treasury bond sales to be a big ‘focus’ over the next week for that reason.

Euro-Zone Bond Sales Bolstered In 2015? By Jason Galanis

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By Jason Galanis

Will they or won’t they? That’s the market’s query for the Eurozone’s bond market, especially during a time where speculation regarding the European Central Bank’s plans for so-called quantitative easing still mounts. But, it seems like many nations within the union are planning to look into bond sales for 2015, particularly the sale of longer dated debts.

Various Eurozone governments are set to sell off a record number of bonds into next year, according to market speculators and analysts. The union’s focus on purchasing longer dated debts indicates an interest to lock in ‘record low’ borrowing costs for the time being.

Market analysts currently expect the union’s biggest borrowers to sell ‘a third more in government debts than they did throughout 2014.’ The Eurozone’s biggest borrowers are expected to issue as much as 927 billion euros (about $1.1 trillion) in bonds throughout 2015. Analysts expect the issuance to be up about 34 percent from last year’s projected figure.

Jason Galanis

Jason Galanis: “Will Euro-bond sales be up in 2015?”

Germany is a notable exception, as the country has a vested interest in eliminating their budget deficit. Although the union’s biggest economy, Germany plans to reduce bond issuance to its lowest levels since 2002 by 2015.

Eurozone investors are expected to look for higher yields in riskier debts, notably those from low-rated issuers like those in Portugal, Spain and Italy. Although riskier, investors are counting on the European Central Bank ‘becoming a buyer’ of such debts in the next year.

In fact, bond investors are betting a lot on the European Central Bank into next year. The prospect of the central bank possibly expanding their asset purchases to specifically include government bonds has helped a nearly three year rally in Eurozone debts gain momentum. That momentum played a big part in helping borrowing costs reach record lows.

Even as yields remain low, market demand remains relatively active. Some analysts cite investors ‘wanting to lock in record low yield levels to extend the current rally in Eurozone bonds.’

Sep 28

More Uncertainty in Asian Markets

By Jason Galanis

Monday, markets across Asia saw mixed results, with China’s Shanghai Composite being the only gainer in the entirety of Asia. Markets across the continent sank, fueled by continued doubt about weaker economic growth the world round. The drop follows the announcement from the Federal Reserve that the United States will not be seeing an increase in interest rates, something which many investors had been gearing up towards. Many analysts and investors have taken this decision as an indicator that the Federal Reserve is concerned about global backdrop, which has caused many to lose confidence. 

China The Only Winner

The Shanghai Composite closed up 1.9 per cent at 3,156.54 points in spite of the Fed’s announcement. Ironically, the Fed’s decision was partly down to a slowdown in China’s economic growth and overall poor performance in recent months. Hong Kong’s Hang Seng index did not share the fortunes of its mainland counterpart, closing down 0.8 per cent to 21,756.93 points. Australia saw the most significant decline in the region, with its benchmark S&P/ASX 200 index closing down two per cent to 5,066.2 points. South Korea saw similar losses, with the Kopsi market closing down 1.6 per cent to 1,964.68 points after hitting a five and a half week high in afternoon trading.

Jason Galanis

Jason Galanis: “Will consistency every come back to Asian Stock Markets?”

Japan Closed Down

The region saw significantly lighter trading throughout due to Japan’s markets being closed down until Wednesday for public holidays. The Nikkei’s closure in particular had significant effects on the overall state of trading in the region, as Japan’s markets are the biggest market leaders in the region. When the market reopens on Wednesday, investors will be able to assess the direction of the global economy, collaborating such data with readings from the Eurozone as well as manufacturing activity readings from China in order to get a better sense of the overall state of the world’s economy.

Sep 26

Shanghai Stock Exchange Recovers Losses

By Jason Galanis

Following a long period of decline and uncertainty, the Shanghai Composite saw some positive news during afternoon trade, Wednesday. Having lost ground the previous day, with the mainland benchmark index losing 3.5%, the battered index gained ground to close up 4.89% at 3,152.26. The positive effects of the gain were felt across markets in Asia, which have recently been affected heavily by the diminishing fortunes in China.

Jason Galanis

Jason Galanis: “Can the Shanghai Stock Exchange hold on to recent gains?”

Other Markets Also Benefit

Hong Kong’s Hang Seng index joined the Shanghai Composite in gains, running up 2.55% at 22,003.15 during afternoon trading. Japan’s Nikkei 225 saw a smaller gain, closing up 0.8% at 18,171.60. South Korea also saw good fortunes for its Kospi index. This came despite tensions between the country and its Northern neighbor, which has escalated following news of the North announcing that it was working on improving its nuclear arsenal. Australia also recovered from significant losses, with the S&P/ASX 200 index closing up 1.6% at 5,098.90.

Not All Sunny For China’s Economy

While the stock exchanges experienced an upturn, many individual stocks were not so lucky. Brokerage Citic Securities fell nearly 4%, following suspicion of insider trading and the leaking of sensitive insider information. The markets were also affected somewhat by uncertainty about the upcoming Federal Reserve meeting, which will decide whether or not the United States will see a raise in interest rates for the first time in almost ten years. Analysts speculate that investors suspect a raise in the rates, and that the market is poised to react to an affirmation from the Federal Reserve. The move has acted to bolster Shanghai’s stock market, which has recently experienced a colossal drop-off that has thrown the rest of the world for a loop. The news of a stronger performance has inspired confidence in other markets, and has driven the markets up across the board.

Sep 14

Nigerian Bond Yields Spike

By Jason Galanis

Wednesday, Nigeria‘s bond market saw a huge rise in bond yields of around 100 basis points following an announcement from JPMorgan that the country was to be ejected from one of the key debt indexes, something which was little countered by increased investor sentiment bolstering emerging stocks in the country’s markets.

Massive Gains In Yields

Following the recent trading performance and announcement, Nigerian yields spiked nearly 100 basis points across the board. The 2024 bond yield rose to a staggering 17 pct, an increase of 80 basis points from Tuesday’s closing level. The most significant factor in the rise was JP Morgan‘s announcement that Nigeria was to be removed from its GBI-EM index, which is a benchmark index for local currency emerging debt. The removal is set to take place in October, and stems from Nigeria’s currency controls complicating transactions in the country. Fund managers will be forced to sell off Nigerian bonds following the removal which could trigger significant capital outflows as well as raising borrowing costs for the Nigerian government.

Jason Galanis

Jason Galanis: “What is driving the spike in yield of Nigerian bonds?”

Nigerian Stocks Continue In Uncertainty

Stocks in Nigeria have recently floundered due to weak data coming from Beijing. The African country has seen many assents for emerging stocks being sold off due to the data indicating a slowdown and a weakening in commodity prices, compounded by the uncertain possibility of an interest hike in the US. While many of these emerging stocks saw an increase in investment following the news from China, the overall market fell 2.9 pct. Nigeria is struggling with finding its footing as an emerging market, and with commodity prices falling and uncertainty across the world, it is becoming ever more difficult for them to find their place. JP Morgan’s announcement could potentially hit the country hard, and cause significant problems for them later on.

Sep 10

FTSE 100 Jumps Higher

By Jason Galanis

The UK’s FTSE 100 Index was boosted on Wednesday following strong performances from the US China, Japan, and South Korea on Tuesday. These rises come on the back of promising data from China, which seemed to be pulling out of its recent nose dive into safer territory. In response to this, the FTSE 100 climbed 1.5 pct to 6,241.42 points. All sectors represented saw a boost, with the most significant advances being experienced by the financial groups and the mining groups. The good performance also coincides with Queen Elizabeth the Second becoming the longest-reigning monarch in British history.

Mining Leads The Charge

Jason Galanis

Jason Galanis: “Can the FTSE 100 continue its climb higher?”

Mining was one of the industries that saw the biggest increase following promising news from China and the US, with Glencore PLC topping the FTSE 100 with a five pct rise. Over the past two trading sessions, Glencore has climbed a cumulative 11 pct following an announcement that it is planning to cut its net debt by $20 billion. Similarly fortuitous was copper producer Anglo American PLC, whose shares saw a 5.3 pct increase. Glencore’s recent announcement that it will be suspending two of its bigger mines has rallied investors behind copper, with hopes that the suspension may drive prices of the metal down and cause a buying spree.

 

Some Less Promising Results

Pharmaceutical company GlaxoSmithKline PLC lost ground on the market falling 1.2 pct following poor results from a clinical trial. The trial data failed to prove that the company’s Breo Ellipta Inhaler has any significant effect upon the lifespan of patients with chronic obstructive pulmonary disease, a result which saw shareholders react with disappointment and which dragged down the share prices in the company. The pound also lost out slightly, trading at $1.5378 down from $1.5395 ahead of a reading of UK industrial production.

Sep 08

US Markets Decline Despite Jobs Data

By Jason Galanis

The end of August brought with it good news for the US economy in the shape of an announcement of full employment, with the unemployment rate falling to a seven year low. However, the news from the stock markets was rather more deflating. August saw an overall fall in markets across the US, with the Standard and Poor’s 500 (S&P 500) Index losing 1.5 per cent of its value, falling to 1,922.63 during morning hours. The Dow Jones Industrial Average saw a similar decline, falling 1.6 per cent during morning trading to 16,111.93. This has set expectations for a 3.4 per cent decline in the benchmark index over the following week.

Historically Disappointing

Problematically, September has proven to be the worst financial month of the year in recent history for the S&P 500. All the way back to 1927, September has seen an average decline of nearly 1.1 per cent during the ninth month of the year. Investors appear uncertain and nervous with regards to the decision of the Federal Reserve, who will be meeting later this month to discuss the possibility of a rise in interest rates. Due to the recent collapse in the Chinese markets and the devaluing of the Chinese Yuan, mixed with the recent upsurge in employment, investors are uncertain as to the side upon which the committee will fall, and this is being reflected in the markets.

Jason Galanis

Jason Galanis: “Will US markets finally rebound after the jobs reports?”

Historically Inaccurate

To further muddy the issue, analysts at Deutsche Bank have pointed out that August is historically a month of overestimation regarding payrolls. Their analysis states that over the past four years there has been an average overstatement of August payroll prints of nearly 50,000. The markets have continued to show unsteady and erratic investment patterns that reacts to the uncertainty of the worldwide market, the changes in US economics, and the decline in the value of fuels.

Sep 07

German Exports Tumble

By Jason Galanis

The German exports market brought grim results this week as demand fell steeply from outside of Europe. The month of July saw a dramatic collapse in external demand for German goods, leaving German factories thrown for a loop. Demands from outside of the Eurozone fell by a shocking nine per cent, which led to a downward trend in the overall export demand of 5.2 per cent.

A Significant Fall

The German government predicted a downward trend in the month of July of about 1.4 per cent, following a growth in exports of 1.8 per cent in June. Factory orders were expected to fall by a mere 0.6 per cent in the month of July, however they were instead met with the biggest decline in over six months. The poor performance in factory exports saw Germany‘s benchmark DAX index fall by 1.9 per cent during morning trading, and saw its Purchasing Manager index drop to 50.3. This leaves the German economy a mere 0.4 away from an official status of contraction.

 

Jason Galanis

Jason Galanis: “What is causing German exports to tumble?”

The World’s Effect

Germany has been struggling to bear the brunt of many economic difficulties throughout the world. The Greek financial crisis has stretched the country’s Euro currency to the limits and has created severe turmoil throughout European markets, leading to a general turndown in recent months. More bad news piled on with the recent situation in China, whose stock markets have tanked over the past month, leading to a lot of panic amongst investors. The lack of momentum within the German economy will leave it exposed to problems coming in from the weakening of the Chinese and emerging Asian markets. Companies in Germany have reacted to the downturn with pessimism, expressing a poor outlook for the next 12 months in German exports, business, and construction. Weaknesses in Germany will spread throughout Europe, a region that relies upon Germany’s strong economy for stability.

Aug 30

Treasury Yields Rally

By Jason Galanis

Treasury yields closed the tumultuous week higher after comments from the Federal Reserve Vice Chairman bolstered hopes for a rate increase next month. The rally marked the largest one week gain for both two-year and 10-year Treasuries since this past June.

Treasury yields move reciprocally to their projected prices: as price fall, yields rise.

The yield for the 10-year Treasury finished as much as 13.5 basis point higher, closing at 2.188 percent. The yield for the two-year Treasury remained flat at 0.684 percent. Longer-maturity bond yields, specifically for the 30-year Treasury, rose another 25.2 basis points for the week, settling to 2.916 percent.

Jason Galanis

Jason Galanis: “Will Treasury yields continue to rally?”

Yields did decline earlier in Friday’s sessions, following the release of data from the personal consumption expenditures price index. As the Federal Reserve’s preferred measure of inflation, the index revealed that prices rose by 1.2 percent year over year during the month of July. That indicated that the United States economy is moving away from the Federal Reserve’s inflation target of a little below 2 percent.

Later in the day, yields rose a little higher following comments from Federal Reserve Vice Chairman Stanley Fischer, in which he stated there ‘was a pretty strong case for an interest rate increase next month before China’s currency depreciation occurred weeks ago.’ Fischer also reiterated that ‘it was too early to figure whether an interest rate increase would be appropriate at their September 16th meeting.’

Personal income growth and consumer spending readings for the country were also released on Friday; both readings were said to be close to economist expectations.

Amid the Friday gains were the lowest volume of activity in weeks, according to market observers. Some welcomed the low volume of market activity after a week of excessive market activity surrounding the China market crash.

Month-end buying, conducted by insurance companies and mutual funds, were said to have occurred during Friday’s sessions. U.K. markets will close Monday for a bank holiday.

Aug 30

Brazilian Recovery Lagging

By Jason Galanis

Official data released Friday revealed Brazil has moved into its deepest economic downswing in nearly eight years.

Economists cited the ‘errant economic policies within the country‘ as the progenitor of the economic problems. Due to that, the country’s road to economic recovery is expected to be ‘a long one.’

The data, released by the Brazilian Institute of Geography and Statistics, revealed the deepness of the economic downswing. Gross domestic product in Brazil shrunk by as much as a seasonally adjusted 1.9 percent during the April to June period, when compared to the previous months. The decrease marked the second consecutive quarter of decline following a previous decline of 0.7 percent during the January to March period.

Jason Galanis

Jason Galanis: “How long will it take the Brazilian economy to rebound?”

The downswing is said to represent a ‘troubling setback’ for the country. Per-capita incomes have been in decline since last years, following consistent increases over the last decade. Investors have also left the country’s markets after the country’s currency – the real – lost 25 percent of its original value over the past year. The real’s decline has forced the central bank to raise the benchmark interest rate to as much as 14.25 percent—one of the highest in the world.

Brazil’s second quarter downswing was anticipated, mainly due to how the country’s economic data trended over the past year. Industrial production within the country dropped sharply during the start of the year, having had remained stagnant for the past few years.
The construction sector has also stagnated, mainly due to a corruption investigation that has held up its biggest producers. Retail sales have also dropped amid record low consumer confidence, which invoked the largest quarterly drop in private consumption in over a decade.

Economists anticipated the second quarter decline being ‘more moderate’ in comparison to the actual data. Many are unsure if the decline will stop, as low commodities prices continue to harm the country’s exports. They suggest that the country needs to ‘take on deeply rooted problems, such as its bloated public sector, in order to resolve many of the economic issues within the country.’

Aug 25

Wild Euro Bond Price Swings

By Jason Galanis

Last Wednesday, European government bonds fluctuated between gains and losses amid investor anticipation for the release of minutes from the Federal Reserve’s most recent meeting. Anticipation was said to revolve around expecting ‘clues that would indicate the timing of the central bank’s anticipated interest rate increase.’

High yield euro sovereign bonds rose, following the German parliament‘s favorable vote for Greece‘s 86 billion euro ($95 billion) aid package. On Wednesday, the Federal Open Market Committee’s minutes were scheduled for release by 2 p.m. New York time. The anticipation for the minutes influenced market sentiment, as investors – according to analysts – expected a ‘more hawkish tone’ to emerge from the minutes.

Jason Galanis

Jason Galanis: “What is causing the crazy fluctuation of European bond market prices?”

Yields for 10-year German bunds remained unchanged from the previous day’s results – 0.64 percent. The August 2025 dated 1 percent security decreased somewhat, settling at 103.15 pct of face value. Throughout the day’s sessions, the yield dropped at least two basis points before regaining them. For benchmark 10-year German bunds, the intraday high and low yield dropped to as much as 3.7 basis points, its lowest levels in nearly one month.

Italian 10-year bond yields also increased, rising by as much as two basis points to settle at 1.83 percent. Earlier in the day’s sessions, the yield dropped by four basis points. Spanish 10 year bond yields didn’t exhibit much change; they remained at 2 pct, but slightly dropped to 1.97 pct during the day’s early sessions.

Reduced liquidity amid the U.S. Federal Reserve‘s anticipated rate increase has influenced euro region bonds, causing them to fluctuate between tight ranged losses and gains throughout the week. Futures traders and investors were said to suspect a ’48 percent chance’ that the Federal Reserve will increase the benchmark interest rate by its September meeting, provided the federal funds rate remains at an average around 0.375 percent.

Aug 23

European Bonds See Retreat

By Jason Galanis

Earlier in the week, bond prices retreated in several Euro markets, following the release of economic data that had indicated a slight pick-up within the global economy. The release of such data, as a result, limited demand for various fixed income assets.

On Tuesday, yields on benchmark German bunds rose. Ten-year German bund yields increased by two basis points – 0.02 percentage points – settling at 0.64 pct by evening London time on Tuesday. The August 2025 dated 1 percent security dropped by 0.15 to settle at 103.45.

Spanish 10-year bond yields also rose a few basis points – six – to settle at 2 percent. Italian securities saw a similar increase—rising five basis points to settle at 1.81 percent.

Jason Galanis

Jason Galanis: “Can European bond prices stay stable if the world economy picks up?”

The rally in bond yields occurred after United Kingdom data revealed that the country’s core measure of price growth rallied to its highest levels in five months amid its inflation rate circumstantially increased.

As for the United States, data released earlier in the week revealed that consumer price growth performed in the opposite direction, falling slightly from June’s 0.3 percent. In July, consumer price growth slowed to 0.2 percent.

According to market analysts, the unexpected United Kingdom inflation data reversed investor sentiment; the early week market opened bullish amid pressure on Chinese equities, but quickly changed following the release of the United Kingdom data.

In the United States, new home construction hit new levels in July, achieving its highest levels in nearly eight years; the data also impacted bonds earlier in the week. Both measures of data, despite a continued slump in Chinese stocks, contributed to the reduction of Euro securities gains earlier in the week.

Recently, market analysts and observers commented that ‘investors may likely ignore the markets’ should further Euro inflation data turns out to be higher than analyst forecasts.