Global Stocks Slide As Bond Curves Steepen On Central Bank Concerns; Oil Falls
By Tyler Durden
Yesterday we asked if the stealthy Japanese intention to steepen the JGB yield curve will crash global markets. While a crash, if any, has yet to emerge, overnight we have observed another bond selloffs, particularly at the long end of the curve, which has spilled over into stocks around the world on what Bloomberg dubbed were “signs central banks are starting to question the benefits of further monetary easing.” Oil pared a weekly gain, leading commodities lower.
As predicted yesterday, today longer-maturity bonds bore the brunt of the losses after the European Central Bank on Thursday downplayed the need for more stimulus, sending 30-year German bund yields to the highest since June, while Reuters added that “The Bank of Japan is studying several options to steepen the bond yield curve, say sources familiar with its thinking, as authorities desperately seek out policy tools to revive an economy that has failed to emerge from stagnation despite years of massive stimulus.”
As shown in the chart below, both Japan and German long-term yields are almost back to positive…
… while those invested in Japanese 40-year bond have already suffered a 15% loss.
‘Yes’, #bonds can go down too. #Japan‘s 40-year govt bond down 15% as #BoJ is running out of options. pic.twitter.com/JU7VUv8PG1
— jeroen blokland (@jsblokland) September 9, 2016
The “initial reaction could be that there will be less activity from the ECB and central banks in general,” Frederic Pretet, a strategist at Scotiabank Europe told Bloomberg. “It was a bit unexpected to see no actions from the ECB yesterday at a time when they revised down their growth and inflation forecast. The lack of further activity is surprising and a bit worrying.”
As further expected, the bond selling is spilling over into stocks, with the MSCI All-Country World falling the most in more than a week. The euro rose to a two-week high and the yen strengthened, although it has since tumbled on a rumor from Japan’s Kyodo that the BOJ is “mulling” cutting negative rates further for easing, which as explained yesterday, is the BOJ’s most likely next step: cutting short-rates, while engaging in a “reverse twist” to steepen the yield curve.
As a result, Draghi’s reticence accelerated a selloff in bonds that extended from Europe to the U.S. and Japan, with longer-dated securities, which have been outperforming in recent months, being the hardest hit. While yields are still low compared with historical averages, they are quickly rising from records reached earlier this year, recalling the bond rout of 2015, which saw German 10-year yields climb more than a percentage point in less than two months. The yield on German 30-year bonds climbed six basis points to 0.57 percent at 10:40 a.m. in London, adding to a nine-basis-point jump the previous day, while that on similar-maturity U.S. securities has increased nine basis points since Thursday. Chances of the Fed raising rates at the September meeting climbed to 28 percent, up six percentage points from Wednesday, according …read more
Source: Global Stocks Slide As Bond Curves Steepen On Central Bank Concerns; Oil Falls
