Back
14 May 2015
Bond yields continue to rise – MP
FXStreet (Barcelona) - Dean Popplewell, VP of Currency Analysis and Research at MarketPulse, comments on the ongoing sell-off in the bond market, and further notes that higher yields are continuing to support the EUR.
Key Quotes
“Sovereign debt markets are usually considered relatively stable with intraday yields moving only a few hundredths of a percentage point a day. In less than three-weeks, Germany’s 10-year bund yield has rallied +75 basis points from a record low yield of +0.05% and U.S 10’s have gone from +1.85% to +2.32%. The price move is equivalent to three rate hikes and then some.”
“Receding deflation concerns, upcoming supply issues, and worries about trading liquidity have all been cited as reasons behind the recent bond selloff.”
“Despite debt markets having lost about $500b+ in value and yields having spiked, monetary policy makers are showing no signs of an imminent increase in the price of money. The ECB and the BoJ are still conducting quantitative easing. The ECB only started in March and Draghi’s monthly +€60b debt demand is expected to cap the upside for yields and QE is slated to continue until September 2016 – there are no reasons to end it sooner.”
“Currently, higher yields are supporting the EUR and a stronger EUR will only weigh on the export driven companies in the eurozone, which does not support growth and does not justify rates being so high. There is an argument for a normalized rate curve, but Euro growth remains uneven and bumpy at best (Germany, the engine of Europe, preliminary GDP Q1 number disappointed yesterday +0.3% vs. +0.7%) and shows no signs of being sustainable.”
Key Quotes
“Sovereign debt markets are usually considered relatively stable with intraday yields moving only a few hundredths of a percentage point a day. In less than three-weeks, Germany’s 10-year bund yield has rallied +75 basis points from a record low yield of +0.05% and U.S 10’s have gone from +1.85% to +2.32%. The price move is equivalent to three rate hikes and then some.”
“Receding deflation concerns, upcoming supply issues, and worries about trading liquidity have all been cited as reasons behind the recent bond selloff.”
“Despite debt markets having lost about $500b+ in value and yields having spiked, monetary policy makers are showing no signs of an imminent increase in the price of money. The ECB and the BoJ are still conducting quantitative easing. The ECB only started in March and Draghi’s monthly +€60b debt demand is expected to cap the upside for yields and QE is slated to continue until September 2016 – there are no reasons to end it sooner.”
“Currently, higher yields are supporting the EUR and a stronger EUR will only weigh on the export driven companies in the eurozone, which does not support growth and does not justify rates being so high. There is an argument for a normalized rate curve, but Euro growth remains uneven and bumpy at best (Germany, the engine of Europe, preliminary GDP Q1 number disappointed yesterday +0.3% vs. +0.7%) and shows no signs of being sustainable.”