The ferocious sell-off in US government debt markets has spilled into corporate bonds, nudging companies’ borrowing costs higher during a time when the economy is still recovering from the pandemic shock. The average yield across US investment-grade bonds hit 2.28 per cent at the end of last week, according to an index compiled by ICE Data Services, up 0.17 percentage points since the end of February and 0.5 points so far in 2021. The rise in yields, which reflects a fall in prices, marks the bonds’ worst performance since Covid-19 struck a year ago. Emerging signs of economic recovery, a quickening vaccine rollout and the recent passing of US president Joe Biden’s stimulus package have fuelled expectations of higher growth and inflation and jolted Treasury yields higher. That has eroded the value of bonds that offer fixed interest payments, especially higher quality corporate bonds that pay only a relatively small “spread” above Treasury yields. While the underlying reason for the decline in the credit market is positive, the rise in borrowing costs could counter Federal Reserve chief Jay Powell’s ambitions to keep his foot on the economic accelerator by keeping lending conditions easy. This has sharpened bond traders’ focus on the central bank’s upcoming meeting, which ends with a policy announcement on Wednesday. News Corp has struck a three-year deal to provide news to Facebook in Australia, ending a battle between two billionaire-owned empires being watched worldwide as a possible template for regulating Big Tech. The Rupert Murdoch-controlled publisher said on Monday the agreement would allow it to “provide access to trusted news and information to millions of Facebook users” in the country through the social media network’s dedicated news tab. Financial details were not disclosed. The deal includes content from The Australian newspaper, the Sydney-based Daily Telegraph and the Melbourne-based Herald Sun as well as regional publications, News Corp said in a statement. The pay television channel Sky News Australia has reached a parallel deal, it added. The agreements come after Australia last month passed a controversial law designed to force major technology platforms such as Facebook and Google to pay publishers for news content. The U.S. Treasury sold $38 billion in 10-year notes Wednesday at a high auction yield of 1.523% with solid demand for the benchmark paper following a softer-than-expected reading for February inflation. Investors bid $2.38 for every $1 on offer from the Treasury, auction data showed, modestly higher than the prior auction on February 10, when the yield was 1.155%. With around $18 trillion in global government bonds trading with a negative yield, the 1.523% yield on a risk-free 10-year attracted robust international demand, with foreign buyers taking up around 57% of the overall total, down from the six-month average of around 60.9%. The sale edged 10-year note yields modestly lower, to 1.512%, and the overall auction strength allowed U.S. stocks to hold onto previous gains, with the Dow Jones Industrial Average marked 400 points higher on the session and the S&P 500 adding 27.5 points from last night's gains. A “storm” swept through the US government bond market on Friday, sending a key measure of long-term borrowing costs to the highest level since last February. Treasuries dropped in overnight trading after a large sale of long-dated bond futures in Asia, according to people familiar with the matter. Yields on the benchmark 10-year note, a key marker across global asset markets, jumped to 1.63 per cent, having traded at about 1.53 per cent the day before, and remained around that level throughout the day. Analysts said the scale of the move underscored how jittery the $21tn market had become against the backdrop of a more robust economic rebound. Treasuries have been under pressure since the start of the year, as investors anticipate higher inflation and growth in the coming months following another enormous injection of fiscal stimulus with the passage of the Biden administration’s $1.9tn package. US stocks rallied strongly on Tuesday as big tech names such as Tesla and Apple roared higher after a sell-off the previous day. The technology-heavy Nasdaq Composite gained 3.7 per cent, a day after the benchmark slumped into correction territory. Tuesday’s rise was the index’s best one-day performance since November. Wall Street’s benchmark S&P 500 rose 1.4 per cent, giving the blue-chip index its second gain in six sessions. The US Senate has voted to approve Joe Biden’s $1.9tn stimulus legislation, taking the president’s plan to stoke America’s economic recovery a big step closer to its final passage in Congress. The upper chamber of Congress passed the fiscal stimulus legislation by 50 to 49, following party lines with all Democrats voting in favour and all Republicans present opposing. The Senate green light brings Biden’s goal of boosting the US economy with a large-scale dose of federal support during his first months in office within sight of the finishing line. Speaking from the White House, Biden described the Senate vote as a “giant step forward” for his efforts to “relieve the suffering and meet the most urgent needs” of the pandemic-battered nation. The US economy created 379,000 jobs in February, pointing to a sharp rebound in the American labour market amid a rapid decline in coronavirus cases nationwide. The increase in employment last month was more than double its pace in January, when the economy created 166,000 jobs after shedding 306,000 positions during the pandemic’s winter surge in December. However, it still leaves the world’s largest economy 9.5m jobs short of its pre-pandemic levels. The US unemployment rate edged down to 6.2 per cent. A sell-off in US government debt accelerated after the jobs report was released on Friday. The yield on 10-year Treasury bond climbed 0.05 percentage points to 1.62 per cent — its highest since February 2020 —extending losses that wracked up yesterday after Federal Reserve chairman Jay Powell failed to quell concerns about the destabilising rise in Treasury yields in recent weeks. Government bond prices sustained a further blow on Thursday, prompting benchmark stocks to wipe out close to all gains for the year, after comments from Federal Reserve chairman Jay Powell failed to reassure investors. With prices falling, the yield on the 10-year US Treasury note climbed to 1.53 per cent, up 0.05 percentage points from the previous day and continuing a sharp rise that has spread to debt issued by other nations. In stocks, the benchmark S&P 500 index extended recent losses, briefly wiping out its gains for the year with a fall of as much as 1.7 per cent. The index later clawed back some of its losses, and closed down 1.3 per cent. The technology-focused Nasdaq Composite finished 2.1 per cent lower, turning negative for the year. Investors had been waiting to see if the Fed would react to the broad sell-off in government bonds in recent weeks with a stronger message or hints of fresh intervention to calm the market. Opec and Russia decided against unleashing a flood of crude on to the market after Saudi Arabia urged fellow oil producers to “keep our powder dry” in the face of persistent uncertainty linked to the pandemic. The careful approach to April production sent oil prices up more than 5 per cent, with Brent crude above $67.30 a barrel — near the highest level since January 2020, when coronavirus had only just begun spreading across the world. Prince Abdulaziz bin Salman, the kingdom’s oil minister and son of King Salman, said on Thursday that while there was “no doubt” the market had improved since January, he wanted to “urge caution and vigilance”. “Let us be certain that the glimmer we see ahead is not the headlight of an oncoming express train,” he said, as a meeting of oil ministers began. “The right course of action now is to keep our powder dry, and to have contingencies in reserve to ensure against any unforeseen outcomes.” Donald Trump said he might run for president again, delighting his supporters at a speech to the Conservative Political Action Conference — his first public appearance since leaving the White House last month. The former president sent audience members at the Cpac event in Florida into raptures with a typically combative speech, much of which repeated material he used on the campaign stump last year. He promised not to divide the Republican party by setting up his own political movement, and suggested he could seek the party’s nomination for president again in 2024. Trump said: “Biden has failed in his number one duty as chief executive enforcing America’s laws. This alone should be reason enough for Democrats to suffer withering losses in the midterms and to lose the White House decisively four years from now.” Global stocks bounced back and government debt rallied on Monday after last week’s turbulent trading, triggered by worries over the possibility of a breakneck economic expansion and the possibility of central banks tightening monetary policies. Wall Street’s blue-chip S&P 500 index rose 2.4 per cent, its biggest one-day gain in almost nine months and enough to erase almost the entirety of last week’s declines. The technology-focused Nasdaq Composite climbed 3 per cent. Small-cap stocks advanced even further, with the Russell 2000 up 3.4 per cent — on track for its best daily performance since early January. In Europe, the region-wide Stoxx 600 closed up 1.8 per cent, while both London’s FTSE 100 and Frankfurt’s Xetra Dax indices ended the session 1.6 per cent higher. The gains for global equities came as core government debt on both sides of the Atlantic rallied. The yield on the 5-year US Treasury, which was at the centre of the market tumult last week, fell 0.03 percentage points to 0.70 per cent on Monday, while the yield on Germany’s 10-year Bund slid 0.07 percentage points to minus 0.34 per cent. There was less enthusiasm for the benchmark 10-year US Treasury note, which had rallied sharply on Friday. The yield rose 0.03 percentage points to 1.43 per cent, although well below the 12-month high of 1.61 per cent reached last week. The US has carried out air strikes against Iran-linked militia groups in eastern Syria in retaliation for recent attacks on American and coalition personnel in Iraq. The military action on Thursday was the first ordered by President Joe Biden since taking office and was described by John Kirby, Pentagon press secretary, as a proportionate response. “At President Biden’s direction, US military forces earlier this evening conducted air strikes against infrastructure utilised by Iranian-backed militant groups in eastern Syria,” Kirby said in a statement. He added that the US strikes had “destroyed multiple facilities located at a border control point used by a number of Iranian-backed militant groups”. A defence department official said it was believed that “up to a handful” of people had been killed in the operation. Shia militia groups have claimed responsibility for attacks on US facilities in Iraq in recent weeks. A rocket attack last week killed a civilian contractor and injured several others, including a member of the US military. One of the most powerful US bond managers has warned of an “inflation head fake”, where misplaced concerns about a rise in consumer prices cause a jump in bond yields. The comments by Dan Ivascyn, chief investment officer at Pimco, which has $2.2tn under management, come after long-dated US Treasury yields climbed to their highest level in a year. The dramatic move reflects expectations of a robust economic recovery, further fiscal stimulus from Joe Biden’s administration and the willingness of the Federal Reserve to tolerate core inflation running above 2 per cent. “There is a material risk for the bond market of an inflation head fake,” Ivascyn told the Financial Times. “This could be a powerful recovery and we have never gone from locking down an economy to opening it back up with this amount of stimulus.” Pimco expects any inflation pick-up will prove temporary, but “the bond market may not come to that conclusion in the near term”, Ivascyn said. Inflation will remain contained because of long-established trends such as technological innovation cutting costs and the weakness of organised labour, Pimco has argued. Slack will also linger in the labour market due to high unemployment, Ivascyn said. “We still see powerful disinflationary trends. After an initial recovery [from the pandemic] there is likely a world of excess capacity,” he said. The global government bond sell-off deepened on Wednesday, with the 10-year US Treasury yield jumping above 1.4 per cent for the first time since the start of the coronavirus crisis. European government bonds were also caught-up in Wednesday’s selling, sending yields on British, French, German and Italian bonds rising. The drop in prices is the latest leg of a broad shift away from government debt that has been driven by a more upbeat global economic outlook and rising concerns over inflation. The 10-year Treasury yield rose as much as 0.09 percentage points on Wednesday to reach 1.4337 per cent, having started the year at around 0.9 per cent. Longer-term Treasuries faced more intense selling since they are more vulnerable to changes in inflation expectations. The global bond market is suffering its worst start to a year since 2015 as investors grow increasingly confident that the rollout of Covid-19 vaccines will boost economic growth and fan serious inflationary pressures for the first time in decades. As the pandemic ravaged the US economy in 2020, Jay Powell publicly pushed Congress to approve more government stimulus to support the recovery and complement the central bank’s easy money policies. But in recent weeks, the Fed chair has switched to a more neutral stance on the need for more fiscal support, just as US President Joe Biden and Democratic lawmakers are trying to approve an additional $1.9tn in government spending. The shift was apparent as Powell faced two days of questioning from lawmakers on Capitol Hill this week and repeatedly refused to take a position on Biden’s top legislative priority, which is staunchly backed by Democrats and resisted by Republicans. Facebook has agreed to restore Australian news on its platform “in the coming days” following an agreement with the government on amendments to a proposed law that would force Big Tech to pay for news. The world’s largest social media company said on Tuesday it was satisfied that “a number of changes and guarantees” it had agreed with Canberra addressed its concerns over the bill. The proposed law is being debated in parliament and could become a model for other governments’ efforts to reframe the relationship between dominant tech platforms and the media. Facebook had argued that the legislation “fundamentally misunderstood” its interaction with publishers and penalised the company “for content it didn’t take or ask for”. It abruptly blocked the sharing of news in the country altogether last week, causing a public backlash after access to critical emergency services and health pages was cut off. “Facebook has refriended Australia, and Australian news will be restored to the Facebook platform,” said Josh Frydenberg, Australia’s treasurer. “Facebook has committed to entering into good faith negotiations with Australian news media businesses and seeking to reach agreements to pay for content.” Microsoft has joined forces with Europe’s publishers to deepen the troubles of Google and Facebook, launching a project to develop an Australia-style arbitration system for the EU that would force Big Tech to pay for news. The move by the Seattle-based company is one of its most brazen yet to align with the press industry, exploit the difficulties of its Silicon Valley rivals and promote its own search engine Bing as a copyright-friendly alternative for news. The project announced on Monday will involve Microsoft working with Europe’s four leading lobby groups for news publishers to develop a legal solution to “mandate payments” for the use of content by “gatekeepers that have dominant market power”. The informal coalition, which will propose that the plan is added to upcoming EU legislation on Big Tech, includes the European Publishers Council, News Media Europe, and the associations for European magazine and newspaper publishers, which together represent thousands of news outlets. Microsoft and the publishers said on Monday that they would support a form of arbitration, and would look closely at the model developed in Australia, which prompted Google to strike a flurry of licensing deals and Facebook to stop sharing Australian news on its service. The plans — this time guided by a cautious “data not dates” approach — detail dates for the reopenings of schools and businesses alongside new rules for socialising, while the vaccination programme rolls on. Data permitting, all restrictions are set to vanish by the end of June. Three studies on vaccine effectiveness, released today to buttress the government’s proposals, will also be noted closely by other countries. The UK was not only the first to begin mass vaccination with authorised jabs but also — controversially — extended the interval between doses from four to 12 weeks, a decision seemingly justified by the new data that show single doses can significantly cut the risk of hospitalisation, even among the elderly. Donald Trump was acquitted of inciting an insurrection in last month’s deadly assault on the US Capitol, as Republican senators closed ranks at the former president's second impeachment trial. The Senate voted 57-43 on the question of whether Trump was guilty of inciting an insurrection. Seven Republicans — Richard Burr, Bill Cassidy, Susan Collins, Lisa Murkowski, Mitt Romney, Ben Sasse and Pat Toomey — joined Democrats in voting to convict the president. Trump was cleared because two-thirds of the Senate would have needed to find the former president guilty for him to have been convicted under the US constitution. Democrats had hoped to convict Trump and then hold a simple majority vote to bar him from holding public office in future. Trump has not ruled out running for president in 2024. The acquittal caps a dark period in US political history that began with Trump's rejection of the November 3 election results and culminated in the worst episode of political violence in the halls of the US Congress in more than two centuries. The swift conclusion of the trial after five days will free up political space and the legislative calendar for Congress to move ahead with talks to pass Joe Biden's $1.9tn economic stimulus plan, his top priority since his inauguration on January 20. Donald Trump has not spoken in public in more than three weeks, an uncharacteristically long stretch of silence for the former president who built his political career on nonstop social media posts and television appearances. But his voice was omnipresent in Washington this week, as Democrats repeatedly used Trump’s own words against him. They deployed hundreds of tweets and videos to burnish their argument that he must be convicted at his Senate impeachment trial for inciting the deadly January 6 siege of the US Capitol. Many Republicans were unimpressed. Rick Scott, a senator from Florida, spent much of Thursday doodling on blank maps of Asia and Europe at his desk in the Senate chamber, while others distracted themselves by reading books or their iPads. Some of Scott’s colleagues left the room for extended periods of time. Their abject lack of interest underscored what many Democrats and Republicans already know to be a fait accompli: Trump won’t be convicted. Trump’s all but certain acquittal — which could come as soon as this weekend, after the former president’s lawyers make their own arguments — will be a blow to opponents who wanted to see the former president convicted and barred from holding future office. Mario Draghi has been sworn in as Italy’s new prime minister after forming a national unity government that faces the tough task of marshalling a recovery from the Covid-19 crisis. On Saturday Draghi, a former president of the European Central Bank, was officially appointed by Sergio Mattarella, Italy’s head of state, in a ceremony held in the Italian presidential palace in Rome. Draghi becomes Italy’s 30th prime minister since the birth of the republic in 1946 and, having won the backing of almost every large Italian party, will lead a mixed government of made up of a number of technocrats in central roles as well as politicians. Draghi, one of Europe’s most highly regarded public officials, was unexpectedly called in by Mattarella earlier this month after the previous coalition collapsed in the middle of the latest pandemic wave. A flurry of tech and ecommerce listings have given Europe’s market for initial public offerings its best start to the year since 2015, as extended pandemic lockdowns fuel investor enthusiasm for digital companies. So far this year, companies listing on European stock exchanges including London’s have sold €8.4bn in equity through 16 deals, according to Refinitiv data. That figure, which includes new funds raised and owners cashing out stakes, was the biggest haul and number of IPOs for the comparable period since 2015. It was the second-biggest amount raised in data going back to 1998. About 70 per cent of the equity sold was in companies that have benefited from the shift online by businesses and consumers during the pandemic, including card retailer Moonpig and parcel locker business InPost. “We have witnessed some tectonic shifts in the ecommerce landscape as a result of Covid — things we thought would take five years have taken five months,” said James Fleming, global co-head of equity capital markets at Citigroup. As a result, he added, there has been a “significant re-rating of tech company valuations”. The IPO surge highlights how lockdown winners are capitalising on increased demand from investors and a recovery in valuations across global markets. US listings have also soared, fetching a record $22.6bn over the same period. Investors poured a record $58bn into stock funds this week while slashing their cash holdings, in the latest sign of the fervour sweeping global financial markets. Technology-focused funds were at the centre of the surge, with net inflows reaching an all-time high of $5.4bn in the week to Wednesday, according to EPFR data collated by Bank of America. The US had the lion’s share of overall stock inflows, at $36.3bn. Investors also piled $13.1bn into global bond funds while pulling $10.6bn from their cash piles. The data underline how historically low interest rates and expectations for a big rebound this year in global economic growth have whet investors’ appetite for riskier assets. The shift is causing rising unease among some investors and analysts, who worry that asset prices have become overextended. Investor bullishness has been stoked by hopes that coronavirus vaccines are speeding up the fightback against the pandemic and that US president Joe Biden’s $1.9tn stimulus proposal will help the economy recover from the coronavirus-driven recession. Amsterdam surpassed London as Europe’s largest share trading centre last month as the Netherlands scooped up business lost by the UK since Brexit. An average €9.2bn shares a day were traded on Euronext Amsterdam and the Dutch arms of CBOE Europe and Turquoise in January, a more than fourfold increase from December. The surge came as volumes in London fell sharply to €8.6bn, dislodging the UK from its historic position as the main hub for the European market, according to data from CBOE Europe. The shift was prompted by a ban on EU-based financial institutions trading in London because Brussels has not recognised UK exchanges and trading venues as having the same supervisory status as its own. Without this so-called equivalence to ease cross-border dealing, there was an immediate shift of €6.5bn of deals to the EU when the Brexit transition period concluded at the end of last year. It was about half of the amount of business that London banks and brokers would normally handle. Analysts and executives say the transfer would not mean thousands of jobs leaving London, while the tax hit would be limited to the effects the move in trading would have on the profits of companies involved, they said. Financial services contributed almost £76bn in tax receipts to the UK Treasury last year. |
PurposeMajor markets news headlines which captured the markets. Archives
March 2021
Categories |