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Markets calmer but bond market troubles not over

Fawad Razaqzada Fawad Razaqzada 01/03/2021
Markets calmer but bond market troubles not over Markets calmer but bond market troubles not over
Markets calmer but bond market troubles not over Fawad Razaqzada
As we start the new week, the focus is once again on bond yields after their recent rapid rebound. As investors dumped longer-dated government debt, other financial markets have started to feel the pressure with gold being among the first victims (since rising yields increases the opportunity cost of holding assets that pay no interest or dividends like precious metals). Stocks were ignoring the rising yields until a couple of weeks ago, when investors were still happy to keep buying racier assets and those likely to perform well during better economic times, such as equities, copper and crude oil. However, even equities have started to struggle over the past couple of weeks as the yield on the 10-year US government debt closed in on the S&P 500’s dividend yield of around 1.50 percent.  Some yield-seeking investors would now think twice about investing in US equity markets without seeing a decent correction first, or until bond yields start falling again.

Bond prices have slumped on speculation that central banks will soon start tapering bond purchases as the global economy recovers from the pandemic with the gradual easing of lockdowns and as inoculation increases.

However, central banks are evidently getting worried about the rising yields and are keen to stop the bond market route. The Reserve Bank of Australia bought double the usual amount of Australian government debt overnight, causing yields to drop sharply.  The Bank of Japan was reported to have warned that it too was prepared to quell risk of yields rising too much ahead of the central bank’s policy review on 19th March. German bund yields fell noticeably too, pressuring the euro and causing a rebound in European stock markets Monday morning. This was possibly due to increased purchases of bonds by the European Central Bank, with ECB policymakers repeatedly having talked up the potential to accelerate PEPP purchases if needed.

But what about the US Federal Reserve? Let’s see if the central bank of the world’s largest economy will do anything about rising yields, or its policymakers hint of any policy tweaking such as yield control. There are a few Fed speakers this week, with Powell’s speech on Thursday perhaps the most important one to watch.

US 10y bond yieldsSource: ThinkMarkets.com

It terms of data, there are a few macro releases to keep a close eye on this week, not least the US jobs report on Friday. The other main event is the OPEC meeting on Thursday, which should move oil prices sharply. Here are the data highlights:
 
  • Monday: US ISM Manufacturing PMIs expected to have remained unchanged at 58.7. Chinese manufacturing PMI came in weaker at 50.6, while final PMIs from Japan, Eurozone and UK were all revised higher.  
  • Tuesday: RBA, German retail sales and unemployment change, and Eurozone CPI
  • Wednesday: Aussie GDP, US ADP private payrolls, crude inventories and services PMIs from China (Caixin) and US (ISM), as well as final PMIs from Europe and UK budget
  • Thursday: OPEC-JMMC meetings, Fed Chair Powell speech and unemployment claims
  • Friday: German factory orders, US nonfarm payrolls report
 
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
×
Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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