Finally Get What They Wished For Are Rubbing Their Lamps Again
Government bonds are continuing to sell off today: “the US 10-year Treasury yield rose to 2.36 per cent in early New York trading, its highest level since November…Euphoria over the [ECB’s] €60bn-a-month monetary stimulus that pulled the German 10-year bond yield down towards zero per cent last month has faded on improving growth prospects and climbing inflation expectations…’[the sell-off] is starting to stretch the boundaries of what you could call a technical correction. A lot of strategists are getting nervous,’” says a strategist. John Williams, however, thinks nervous is healthy: “my personal preference is that we don’t have the most telegraphed policy decisions in history, as we did in 2004…In a normal economy there is some volatility in markets, that is just a healthy functioning of markets trying to understand and filter what the data means for policy.” Meanwhile, German Bund investors may need to up their intake of aspirin: “It took 102 trading days for 10-year Bund yields to rally from 68bp to their all-time low of 7bp on April 20th. It took just 15 days after that to jump back to 68bp again.” Furthermore, “in the volatility of the last week, the backdrop of negative yielding assets in Europe has changed significantly. Higher yields means fewer negative yields…But even €1 trillion down..negative yielding Eurozone government debt remains greater than the size of positive yielding Euro credit.” Reuters thinks this could be “a shot in the arm” for the ECB: “this has broadened the pool of bonds the ECB can buy under its quantitative easing (QE) purchase programme, which excludes all paper yielding below the minus 20 basis points that corresponds to the bank’s deposit rate.” Meanwhile, “if bond yields are going up because investors demand a higher premium for holding risk, then the losses on riskier assets like equities ought to be bigger still. But that doesn’t appear to be the case. Government bond yields seem to have ticked higher because inflation expectations have been rising…If bond yields are going up because growth expectations are picking up, this should ultimately be favorable for equity markets, albeit after a round of near-term volatility.” Also, the main argument for why this is a “technical” correction has been the surprise announcement by Treasury to issue $64 billion in treasuries this week. However, “demand for the U.S. government securities sold at auction has declined in each of the past three months, after also slumping in the August-through-October 2014 period…the Treasury is also competing with more than $20 billion of debt slated to be sold by companies.” We should get a preview of the “technical” correction thesis today as $24 billion three-year notes go up for auction. Stay tuned.
Mo’ Money, Mo’ Problems
“While [Apple] may well become the first $1 trillion market cap company (Carl Icahn’s recently top-ticking tweets notwithstanding), did you know that AAPL is now bigger than the entire market cap of all Spanish stocks combined? Or that Austria’s $99 billion gross market cap is the size of Mastercard. Or that Finland’s entire stock market is about the size of Verizon?” Speaking of which,
Finland Verizon has no idea what to do with all their money is buying AOL. Also, mutual funds have no idea what to do with all their money are hunting unicorns. Also, sovereign wealth funds have no idea what to do with all their money are “[harnessing] the premium associated with more illiquid assets.”