Banks

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Currencies

Renminbi strengthens further despite gains by dollar

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Financial

Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

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Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Categorized | Banks, Capital Markets, Currencies

US Treasuries suffer fresh sell-off as inflation fears mount


Posted on November 23, 2016

The US government bond market suffered a renewed fierce sell-off and the dollar powered to a fresh 13-year high on Wednesday, as stronger economic data bolstered the case for an interest-rate increase and reinforced the view that the multi-decade bond bull market has reached a turning point.

The Republican sweep of the White House and Congress, coupled with president-elect Donald Trump’s promise to unleash a $1tn economic stimulus package of tax cuts and infrastructure investments, has caused a seismic shift in global bond markets, with prices tumbling and borrowing costs rising as investors bet that inflation will finally reappear.

European bond yields had already jumped earlier on Wednesday on the back of reports that the European Central Bank was considering changes to its securities lending programme, which would ease a bond shortage. The moves were reinforced by strong US durable goods data, and exacerbated by thin trading in bond markets ahead of the US Thanksgiving holiday.

“In what was supposed to be a quiet day, bond vigilantes are putting it to the Treasury market,” said Andrew Brenner, head of international fixed income at National Alliance Capital Markets.

The 10-year Treasury yield shot up by as much as 10 basis points, its biggest move since the presidential election, to over 2.4 per cent for the first time since the summer of 2015. The two-year note yield — the one most acutely sensitive to interest rate expectations — climbed to a six-year high of 1.14 per cent. The 10-year yield later fell back to a rise of 4bp.

The moves came after the US Commerce Department said orders for durable goods rose 4.8 per cent in October, smashing economists’ expectations and reinforcing the sense that any stimulus package will come at a time when the economy is already in reasonable shape, and therefore fuel inflation.

“Donald Trump’s surprise election victory should be viewed as a new global shock, mixing positive demand and negative supply elements. There remains considerable uncertainty about the actual mix of policies to be enacted but the bias of risk reinforces the tilt toward reflation,” JPMorgan’s analysts said in a note.

As a result, mounting expectations of more aggressive US interest rate increases in the coming year has reawakened the slumbering dollar rally, sending the DXY index of the currency’s strength against its major peers to a fresh 13-year high on Wednesday. Only two of the world’s top currencies managed to hold their ground against the greenback.

The yen led a retreat, while the gap between US and Japanese yields widened, opening up the prospect of the Bank of Japan having to intervene in the bond market to retain credibility.

With yields in other bond markets rising in tandem with Treasuries, analysts believe it is getting tougher for the BoJ to maintain its policy of “yield curve control”, keeping the yield on 10-year Japanese government bonds (JGBs) at zero.

The weakening yen was “not a bad thing” for Japan, said Alan Ruskin, a currency strategist at Deutsche Bank, but the widening yield spread was “a problem from a credibility standpoint”.

The jump in Treasury yields also reverberated through the US stock market, the day after all four of the country’s main equity indices hit a new record on the same day for the first time since 1999.

Industries that are considered safer and nearly “bond-like” — such as real estate trusts and utilities — got hit hard on Wednesday. Financial stocks, which benefit from rising interest rates, and smaller companies, that are shielded from the impact of a stronger dollar, rose to fresh records.