Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Categorized | Equities

Global investors dump bonds as post-Trump sovereign debt sell-off quickens


Posted on November 14, 2016

Global investors are dumping sovereign bonds, cutting their exposure to one of the best-performing asset classes of 2016, as the conviction that a Donald Trump presidency will deliver higher inflation dominates markets.

Yields on Treasuries shot higher in Asian trading, a move that has been sustained in early London trading on Monday and rippled out across the eurozone bond market. In Europe, yields on Germany’s 10-year debt are back at levels not seen since the summer, with those on Spanish, Portuguese and Italian bonds also higher. Yields move in the opposite direction to prices, writes Michael Hunter.

With Mr Trump pledging a major infrastrucure programme, tax cuts and protectionist policies, investors have rapidly concluded that will mean higher growth — and inflation — for the US economy over the next couple of years. The absence of inflation in the US since the financial crisis has helped fuel the great rally in bonds, allowing the Federal Reserve to keep interest rates near record lows.

“The prospect of US fiscal stimulus under the new government has increased our conviction that the US 10-year yield will reach 2.5 per cent in 2017, possibly faster than we earlier assumed,” said Francesco Garzarelli, co-head of European macro research at Goldman Sachs. “Whether Mr Trump’s presidency brings fiscal spending or protectionism, we think either scenario would boost inflation.”

In early London trading on Monday, the yield on the benchmark 10-year Treasury bond rose 12 basis points to 2.24 per cent, its highest level since January. The yield on 30-year government paper also jumped 12 basis points to 3.03 per cent, while five-year notes were yielding 1.66 per cent, up 13 basis points.

That, in turn, sent the dollar index up 0.5 per cent to 99.52, moving nearer the 100-point mark it last hit in December.

European bond yields also rose, with the yield on 10-year Bunds up 5 basis points to 0.35 per cent, the highest since early May. Spain’s 10-year debt yield is up 6 basis points at 1.55 per cent, with Portugal’s up 3 basis points at 3.53 per cent.

The post-US election equities rally is holding in Europe, even after a mixed showing in Asia. London’s FTSE 100 is up 1 per cent, with the Xetra Dax 30 up 0.8 per cent. The region-wide Euro Stoxx 600 is up 1 per cent.

Wall Street finished a strong week on a mixed note on Friday, as the S&P 500 slipped but the Dow Jones Industrial Average closed at a record high.