US yields surged after terrible 20Y Auction with biggest tail on record.
The high yield of 4.595% was well above last month's 4.423% but worse, it tailed the yields that prevailed when it was issued (4.562%) by a whopping 3.30bps, which was the biggest tail on record for the tenor since the 20Y auction was introduced in May 2020. The bid to cover tumbled to 2.39, down from 2.53, well below the 2.59 six-auction average, and was the lowest since August 2022. The internals were even uglier, with Indirects awarded just 59.08%, lower than last month's 62.16%, sharply lower than recent average of 68.2% and the lowest since May 2021. And with Directs taking down 19.7%, Dealers were left holding 21.2%, the most since May 2021. Overall this was a very ugly auction, perhaps one can attribute it to nerves from today's FOMC Minutes which however should be a non-event as they are already rather dated and do not reflect the latest reflationary spike. In any case, yields promptly spiked with the 10Y rising as high as 4.325% before retracing some of the move, which also sent stocks sliding briefly before recovering. Source: www.zerohedge.com
📉 China Yields Staying Stuck at Historic Lows as PBOC Slashes Mortgage Reference Rate!
China has taken bold measures to uplift its struggling property sector by implementing its most substantial reduction in a key mortgage rate to date. The five-year loan prime rate saw a notable cut of 25 basis points, plummeting to a historic low of 3.95%. This move, the largest decrease since the rate's overhaul in 2019, underscores China's commitment to stimulating economic growth through targeted measures. The decision to lower the mortgage reference rate is poised to have far-reaching effects, potentially unlocking opportunities for further economic support initiatives. By enabling more cities to lower their minimum mortgage rates, the rate cut aims to revitalize demand in the sluggish housing market. Moreover, it seeks to address the persistent property crisis, which has cast a shadow on overall economic growth. However, despite these efforts, it is not expected that the rate cut will significantly boost homebuyers' sentiment as home prices are still falling in most cities and wage growth is tepid. Following cut's announcement, market response was subdued, with equities and USDCNH experiencing minimal changes, while 10Y onshore government bond yields saw only slight decreases. How will China emerge from this slow economic agony? Source: Bloomberg
Six weeks into 2024, the bond market is struggling ... again.
YTD total return (through Feb 16) of the Bloomberg Agg Bond Index is -2.04% (blue line). Only 1980, 2018, and 2022 had a worse start. (Data started in 1976, so this is the 49th year of data). Source: Jim Bianco, Bianco Research
📉 UK Inflation Remains Stable, Easing Pressure on BoE!
UK inflation remained weaker than anticipated in January, holding steady at 4% year-on-year, defying forecasts of a rise to 4.1%. This unexpected outcome suggests reduced pressure on the Bank of England (BoE) from underlying price increases. Notably, services inflation reached 6.5%, slightly below the BoE's projections. Despite the stable headline rates, the BoE remains cautious amidst labor market tightness and signs of economic recovery. As a result, traders have adjusted their expectations for rate cuts, now anticipating two cuts for the year, with the first expected in September. However, amidst this cautious sentiment, the UK bond market could emerge as an attractive opportunity. Expected decreases in the Consumer Price Index (CPI) signal potential inflationary relief, supporting the case for Bank of England rate cuts by mid-2024. Furthermore, appealing yields following recent market pullbacks add to the attractiveness of the UK bond market as an investment avenue. It's worth noting that the market does not anticipate a rate cut until the first half of 2024, providing investors with ample time to position themselves strategically. #UKInflation #BankOfEngland #InvestmentOpportunity #BondMarket #EconomicOutlook
Are investors too complacent on the 10-year us treasury?
Investors expect 3% treasuries at year-end Source: Win Smart, CFA, BofA, The Daily Shot
The US government sold a record $42 billion of 10-year notes Wednesday at a lower-than-anticipated yield.
The notes were awarded at 4.093%, compared with a when-issued yield of about 4.105% moments before 1 p.m. New York time, the bidding deadline. The lower yield indicates stronger demand than traders anticipated. The auction result broke a streak of tails — or a weaker result for the previous four monthly sales . source : bloomberg
The bond-stock correlation is crashing to its lowest level in months...
Source: www.zerohedge.com
China 10Y yield moves below 2.47%, breaking Covid19 lockdown lows.
China 10Y yield moves below 2.47%, breaking Covid19 lockdown lows. With local equity market imploding and real estate in freefall, fears of a Japanese style deflationary spiral are growing. Should China devalue the renminbi ? Chart vy Sylvain Baude, CFA, Bloomberg
