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LONDON: Government bond yields in the euro area hovered near record lows on Friday, reflecting heightened expectations for European Central Bank easing soon and concern about global recession risks.
Ten-year bond yields in Germany and Italy were poised to record their biggest weekly falls since mid-2018, while Spanish 10-year yields, down 23 basis points this week, are on track for their biggest weekly fall since 2016.
ECB policymaker Olli Rehn on Thursday flagged the need for a significant easing package in September, sending yields across the bloc to new lows.
Alongside increasing concern about global recession risks, fuelled after the U.S. bond yield curve on Wednesday inverted for the first time in 12 years, this has meant another stellar week for world bond markets where prices have shot up — pushing yields down.
“The underlying concern and drivers such as a recession and the expectation for an aggressive policy response, fuelled by Rehn’s comments yesterday, has given the bond market another boost at already elevated levels,” said Commerzbank rates strategist Rainer Guntermann.
In early trade, most 10-year bond yields in the euro area were flat to a touch lower on the day.
Germany’s 10-year bond yield hovered near a record low hit on Thursday at -0.714% and is down around 12 basis points this week.
In Italy, speculation that the ECB will cut rates and unveil other easing measures at its September meeting has helped the bond market recover from sharp selling a week ago after the prospect of a snap election moved back into focus.
Italian 10-year yields are down almost 45 bps this week and were a touch higher on Friday at around 1.36%, still holding near their lowest levels in almost three years.
Analysts also noted a sharp tightening in the gap between swap spreads and German bond yields this week, in a sign that markets were lowering the scarcity premium attached to holding German bonds and positioning for fiscal stimulus in the euro area.
And while many expected bond yields to remain at ultra-low levels, some believed market concern about recession risks — reflected in the inversion of the U.S. 2-10 year yield curve this week — were overdone.
“We don’t see a recession coming ‘imminently’ even though the U.S. yield curve has inverted,” said Fahad Kamal, chief market strategist at Kleinwort Hambros. “Bonds remain hideously expensive.” – Reuters
Australian shares tumbled on Thursday after an inversion in the U.S. bond yield curve flashed warning signals to investors that the global economy faces severe risks.
For the first time since 2007, the yield on the U.S. Treasury 10-year note temporarily fell below the two-year yield, an inversion of normal interest rate patterns that is widely seen as an indicator of a looming recession.
The S&P/ASX 200 index suffered broad losses with only 12 of the index’s 200 stocks showing gains at one point.
It had fallen 2.1%, or 135.9 points, to 6,459.9 by 0200 GMT. On Wednesday, the benchmark rose after U.S. President Donald Trump delayed tariffs on some Chinese imports, which eased concerns about the U.S.-Sino trade war.
Talking about the risk to Australia, Damian Rooney, a director of equity sales at Argonaut, said “we’re in a pretty tough position,” with interest rates at record lows.
“The last time when we had a global financial crisis, Australia had very high interest rates and could cut and we were one of the few countries that avoided a recession. This time they are significantly lower.”
All three major U.S. indexes slumped on Wednesday, including the blue-chip Dow Jones industrial average, which posted its biggest one-day points drop since October last year.
Australia’s Big Four banks – Commonwealth Bank of Australia , Westpac Banking Corp, National Australia Bank and Australia and New Zealand Banking Group – slumped between 1.9% and 2.6%.
Australian miners, already highly dependent on economic growth in China, also fell as worries of recession raised fresh demand fears.
BHP Group and Rio Tinto fell 2.2% and 2.3%, while most other major miners like Fortescue Metals Group and South32 were also lower.
A steep fall in oil prices weighed on oil-and-gas stocks, with Woodside Petroleum down 5.4%. The company earlier posted a smaller half-year profit than a year earlier and lowered its interim dividend.
Local gold stocks benefitted from investors’ move to the perceived safety of the metal.
Treasury Wine Estates, one of the few non-gold stocks on the rise, was boosted by a more than 16% rise in annual profit following higher demand in Asia for its premium names. The stock rose as much as 4.3% for its biggest intraday gain since January.
New Zealand’s benchmark S&P/NZX 50 index slipped 1.4%, or 151.81 points, to 10,697.95.
Vista Group, which supplies software to the global movie industry, led the losses, down 3.6% while a2 Milk fell 2.3%. – Reuters
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NEW YORK: Plunging bond yields jolted global markets Wednesday as interest rate cuts by three central banks and grim German economic data underscored worries about a weakening global economy amid the protracted US-China trade war.
Wall Street opened the day in sell-off mode, a familiar theme in August as the US and China have announced new measures targeting each other.
But after a bruising start, US stocks gradually pushed higher throughout the day while Treasury yields recovered from their lows. Two of the three major Wall Street indices finished in positive territory.
Decisions by more central banks to cut interest rates and weak German industrial data “reminded investors that economic growth in several other regions of the world remain at risk as the US and China trade dispute drags on,” said CFRA strategist Lindsey Bell in a note.
“While uncertainty is driving upside in defensive asset classes, we don’t think stocks should be abandoned at this time. A near-term recession is unlikely.”
Still, most banks were under pressure, with Italy’s UniCredit and Germany’s Comemrzbank both sharply lower following warnings on the hit from lower interest rates. Large US banks such as JPMorgan Chase and Wells Fargo also lost more than two percent.
Bond prices rise as more investors seek safe investments, and that pushes their yield or return lower. The benchmark US government 10-year note dropped to multi-year lows, while French and German bond yields, already in negative territory, set new record lows.
“Nobody wants to be vulnerable, everybody is in risk aversion mode, and all ingredients are in place to push yields lower,” Aurelien Buffault, bond manager at Meeschaert, told AFP.
Rates falling everywhere
Markets now believe that the world’s key central banks will cut interest rates further to stave off, or at least alleviate, any coming recession, analysts said.
“Rates falling everywhere,” analysts at Moneycorp said.
“They may not exactly be competing but the world’s central banks all seem to be pointing in the same direction towards lower rates. In every case there is concern, to a greater or lesser degree, about the global economy.”
Commodity markets also followed the logic of economic worry, with safe-haven investment gold surging and oil, the fuel of economic growth, falling.
Gold went above $1,500 per ounce for the first time since 2013.
Oil extended already steep weakness after the US Department of Energy reported a surprise increase in inventories — a sign of flagging demand.
European stocks had a rollercoaster session which started on an upbeat note but then turned sour when US stocks fell sharply at the New York opening bell as “escalated US-China trade concerns continuing to weigh on sentiment,” Charles Schwab analysts said.
But as Wall Street came off its morning lows, European equities regained their poise to close mostly higher. – AFP
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