Monday, March 22, 2021

"Turkey Drags EM Lower while US Yields Soften Ahead of Supply"

Why would "yields soften ahead of supply"? Or put the other way, who would load up on bonds with a tsunami on the way?

From Marc to Market:

Overview: Equities in the Asia Pacific region and Europe found little support from the lower bond yields. Chinese, Taiwanese, and Australian equities managed to post modest gains. A fire at a Renesas auto chip facility in Japan weighed on auto shares. This yet another disruption in chip production which was already estimated to cut global auto production by more than a million vehicles this year. The Dow Jones Stoxx 600 is recouping initial losses. Real estate and energy are laggards, while information technology and consumer discretionary sectors advance. Nasdaq futures are around 0.5% higher, while the S&P 500 futures are little changed. The US 10-year yield is off around four basis points to 1.68%, and European yields are 1-3 bp lower, as the ECB's report of last week's buying is awaited, the first since the ECB committed to a "significant increase" in its purchases. The dollar is mostly softer against the majors. while the Swiss franc and Japanese yen are the strongest in late morning turnover in Europe with around a 0.2% gain. The euro and sterling are little changed. The Turkish lira has stabilized and is currently off about 8%. It had lost more than 15% as the markets initially responded to the dismissal of the central bank governor that hiked rates 200 bp last week. Other liquid and accessible emerging market currencies, like the Mexican peso, South African rand, and Russian ruble, were dragged lower. The JP Emerging Market Currency Index is off around 0.8%. Gold had been flirting with the $1750 area last week and has come back offered today and is straddling the $1730 level in the European morning. Last week's low was around $1719.30. After snapping a five-day losing streak ahead of the weekend, May WTI is trading lower again today. Unlike the past couple of sessions, though, the contract is holding above $60 and is gravitating around $61.

Asia Pacific
As widely expected, China left its loan prime rates unchanged for the 11th month.
The one-year rate remained at 3.85%, and the five-year stayed at 4.65%. Over the weekend, China appointed two new economists to the central bank's monetary policy committee. Terms are typically for three years, and this seemed to be the normal rotation. The PBOC is not an independent central bank, and decisions by the MPC require approval by the State Council....


Mr. Chandler's Sunday weekend roundup had some interesting observations:

Are Those Double Tops in the Euro and Sterling?

US benchmark 10-year Treasury yields rose for the seventh consecutive week. Such a streak was seen at the start of 2018 and late Q1/Q2 2009 and 2004, but none longer. The US dollar was mostly firmer, but its gains were concentrated against the Scandis and euro. The Norwegian krone's roughly 1.4% decline against the dollar was the most among the majors, even though the central bank brought forward its first hike to Q4 this year and revised path, implies two hikes next year. The Japanese yen was the strongest of the major currencies, gaining about 0.2%, to end a four-week slide.

What is striking about the rise in US yields last week is that they took place as oil prices tumbled.
May WTI fell by about 8.25%, the most since last October. The breakdown in the co-movement is notable. Other factors influence long-term US Treasury yields besides oil-driven inflation expectations. We note that the significant fiscal stimulus means an endless supply of US Treasuries. Next week the US will raise $200 bln outside of the bill market, and banks lose the exemption for the supplemental leverage ratio....