Image source @Visual China
After only one day of rebound, the European and American bond markets fell sharply again.
On September 29, the European and American bond markets fell sharply again. The U.S. 10-year yield jumped 12BP to 3.834%, while the 2-year yield, which is more sensitive to interest rate prospects, also rose more than 10 basis points to 4.1945%. UK Treasuries opened lower, with the 10-year yield up 11 basis points to 4.12%.
The day before, the United Kingdom rescued the market, driving a collective rebound in the stock and bond markets in Europe and the United States. The UK 30-year yield hit a record drop of more than 120 basis points to 3.974% at one point; The 10-year Treasury yield fell to 3.7 percent at one point, giving back gains since the week.
Qin Han, a team member of Guotai Junan, expects that other central banks will consider similar operations in the future to control the downward rhythm and space of the bond market. Based on the above deduction, it is believed that since the middle of September, the collapse of the European and American bond markets has come to an end, and the long-end interest rates of the following major developed countries may enter a wide range of shock markets, and interest rate hikes are expected to ease, but with the advancement of the interest rate hike cycle in the fourth quarter, the degree of curve inversion will deepen, which is also in line with the rhythm of the continuous increase in the probability of recession in Europe and the United States.
Shi Fangzhou, chief investment officer of Luke Family Office and partner of Luke Investment, told Titanium Media App, "Considering that the Fed has a high probability of continuing to be hawkish, the credit spread of high-yield bonds has not yet reflected the prospect of economic depression, and it is a high-risk area for thunder; Investment-grade bonds can also be negatively impacted by interest rate growth in the short term. When interest rates peak, it's a good time to buy and lock in. ”
Many countries emergency rescue market, European and American bond markets rebounded
The Bank of England issued a statement on September 28 saying it would temporarily purchase UK long-term government bonds "on any necessary scale" to restore order in the UK bond market. In addition, the UK government bond sale plan originally scheduled to start next week was postponed to October 31, but still committed to reducing the £80 billion bond over the next 12 months.
Affected by this, bond yields in Europe and the United States collectively turned down. The UK 30-year yield hit a record drop of more than 120 basis points to 3.974% at one point; The 10-year yield fell sharply at the end of the day, having earlier in the day reached its highest level since the 2008 financial crisis; The 10-year Treasury yield fell to 3.7 percent at one point, giving back gains since the week.
10-year Treasury yield, source: Wind
It is worth noting that bond yield is the reverse indicator of bond prices, and a rise in yields means a decline in bond prices and a book loss for bondholders. Conversely, a fall in bond yields means that bond prices are up.
On the same day, South Korea urgently introduced a "bailout combination punch": the South Korean Ministry of Finance announced that it would urgently repurchase 2 trillion won bonds on September 30; South Korea's Financial Services Commission is preparing to launch a stock market leveling fund while studying a plan to ban short selling.
Affected by the Bank of England's move to boost the bond market, investors in the US Treasury market have also begun to expect whether the Fed can "emulate" the Bank of England. Coupled with the earlier release of "dovish remarks" by Fed officials, which has a certain boost to market performance, the 10-year US Treasury yield once retreated below 3.7% intraday, and the bond rose above 4% last day.
Some institutions are cautious about whether the Fed will intervene to bail out the bond market. Quincy Krosby, chief global strategist at LPL Financial, said: "Powell's credibility remains at stake as they realize that inflation has taken root too late and he misread the inflation situation. He also noted that while the Fed is unlikely to "bail out," the Fed could ease its "quantitative tightening" program, allowing up to $95 billion in bond money per month to be transferred off the balance sheet.
For the first time in 76 years, foreign media: the bond market may have entered the bear
Last week, the Fed raised interest rates by 75 basis points for the third consecutive time, raising the federal funds rate to the range of 3% to 3.25%. Under the shadow of interest rate hikes by the Federal Reserve and other central banks, bond yields have soared across countries, and the global bond market has been hit hard.
The fiercest sell-off was U.S. Treasuries. During the Asian trading session on September 28, the 10-year yield on U.S. Treasury bonds briefly exceeded 4%, rising to its highest since October 2008. The yield has climbed 80 basis points this month, the biggest rally since it surged 89 basis points in July 2003 and has climbed nearly 250 basis points so far this year.
On September 28, the yield on the UK's 30-year Treasury rose 12 basis points to 5.11%, its highest since 1998. The UK's 10-year and 30-year yields also inverted for the first time since 2008.
In addition, Japan's Treasury bond yields have also reached new highs. On September 27, Japan's 20-year Treasury yield rose 2.5 basis points to 1.015% on the 27th, breaking through 1% for the first time since 2015; The 5-year Japanese Treasury yield rose to 0.09% for the first time since September 2015. In addition, the benchmark 10-year yield once again broke through 0.25%.
"Japan has finally encountered long-awaited inflation and is not willing to tighten easily; Against the backdrop of a hike in interest rates on the dollar, the yen depreciated severely; The market believes that it will be difficult for the yen to stick to the existing strategy for a long time. Shi Fangzhou reminded investors that once the Bank of Japan adopts a tightening policy, it will lead to the return of a large number of assets. At that time, the international bond market will also be affected by Japan's monetary policy.
Bank of America strategist Michael Hartnett recently said that the global government bond market is in the "third largest bond bear market in history" and that the current situation is worse than the previous two. The first two bear markets, the first was 1899-1920 and the second was 1946-1981.
A new study by Deutsche Bank dating back to 1786 also shows that after a 20% decline from its peak, the global bond market is now in its first bear market in 76 years. The last time a global bond market performed so badly was in 1946, the year after World War II.
Can the plunge market end?
Institutions and experts said that the purchase of bonds by the United Kingdom, South Korea and other countries may cause other countries to follow suit, but the global severe bond situation has not fundamentally changed.
Bloomberg analysis said that the global bond market will continue to be under pressure as global inflation remains high and market expectations for further monetary policy tightening in various countries continue to rise. Michael Hartnett, chief investment strategist at Bank of America Securities, said in his latest report that the current global bond market situation is extremely grim, and once the bond market collapses, it may bring credit default events and liquidity depletion, which will spread to the entire financial market.
Qin Han, a team of Guotai Junan, believes that the initiator of the collapse of the European and American bond markets in the past week was the unexpected hawkish signal released by the Federal Reserve FOMC meeting, which led to a sharp increase in the market's expectations of not only a 75bp interest rate hike in November, but also a 75bp interest rate hike in December; The catalyst was the UK's increased energy subsidies through larger fiscal stimulus, leading to the formation of closed-loop expectations of inflation-rate hikes in Europe and the United States.
"There are two of them, and since the Bank of England has set a precedent for the distortion of this round of interest rate hike cycle, it is expected that other central banks will consider similar operations in the future to control the downward rhythm and space of the bond market." The above institutions believe that since the middle of September, the European and American bond market plunge market has come to an end, the long-end interest rates of the following major developed countries or will enter a wide range of shock market, interest rate hike expectations will also ease, but with the advancement of the fourth quarter interest rate hike cycle, the degree of curve inversion will deepen, which is also in line with the rhythm of the decline probability in Europe and the United States.
Shi Fangzhou told the titanium media App that in the context of the overall global interest rate hike, the market began to worry about the original high-yield bond market. Since the credit spreads on high-yield bonds do not reflect the prospect of an economic depression, they are a high-risk area for thunder. In the short term, investment-grade bonds will continue to be negatively impacted by interest rate growth.
"Valuations are at historical averages, but the risks are higher than average." In the view of Michael Chang, senior high-yield portfolio manager at Vanguard, the market can absorb a mild recession, but increasingly tight monetary policy could make the economy weaker than expected and could lead to a major repricing of high-yield bonds. (This article was first published in the Titanium Media App, by |.) Marjohn, Editor | Sun Cheng)