“Either Bonds Are Mispriced Or We Have A Big Problem On Our Hands”
It’s an all out currency war (alt). India, China, Singapore, the ECB, Denmark…they are all fighting “to boost domestic economic growth and employment by depressing their currencies, making exported goods more competitive overseas…But currency depreciation also raises the risk of a tit-for-tat race to the bottom, as trading partners seek to outdo one another, only to find gains are limited (read: zero-sum)…What central banks do next is at the top of investors’ minds.” Meanwhile, the Fed is like, SO BORING you guys: “The Federal Reserve once again left interest rates unchanged at a range of zero to a quarter of a percentage point, postponing a return to what it calls normal rates and reiterating that ‘it can be patient’ in deciding when to begin raising rates.” Not much to talk about here. There was one detail, however, I’d like to bring to your attention: this was the first unanimous FOMC decision since last June. Also, an algorithm that “boils down the words from each communication into a single number” suggests that the new voters at the FOMC (Lockhart, Williams, Evans and Lacker) appear to be “more hawkish than the committee as a whole,” but also “likely delaying a rate increase until later than previously indicated” so…data dependency? Meanwhile, “crisis-fighting actions by central banks have not only sent yields on government debt to lows not previously seen in recent history but many of them are now negative (alt).” “Nearly a quarter of all euro zone government bonds now have yields below zero…investors are effectively paying to lend to countries.” Negative yields “imply bond markets think central banks will fail to boost inflation any time soon (e.g. “long-term inflation expectations are now lower than when the Federal Reserve launched its QE programmes”).” Furthermore, “negative yields have immediate implications for other financial assets, which use supposedly ‘risk-free’ government bonds as a benchmark. If government bonds are overpriced, then so is pretty much everything else…’Either bonds are mispriced and large losses loom for investors, or we have a big problem on our hands.’” Meanwhile, Robert Shiller can smell fear on you: “The human race has deep underlying fears about technology and the lives their children will lead and this can be seen — in all places — in the negative yields in bond markets.” Meanwhile, silly ol’ Belarus didn’t really mean it. Also, what will Russia’s central bank do next?!?
“On Wednesday, the U.S. reported record high supplies of the black stuff, rubbing salt in the wounds of anyone hoping for an imminent supply-demand rebalancing and a recovery in prices…Barclays on Wednesday cut its forecast for average Brent prices in 2015 to $44 per barrel from $72.”
China: Rebalancing Update