Friday, April 07, 2006
Euro suffers as ECB dampens May rate hike bets
The euro edged further away from seven-month highs versus the dollar and record levels against the yen on Friday, after the head of the European Central Bank poured cold water on market expectations of a May rate hike.
ECB President Jean-Claude Trichet surprised investors on Thursday, following the bank's decision to hold interest rates at 2.5 percent, when he said the ECB disagreed with markets which had priced in a 100 percent probability of a move next month.
This triggered a sell-off in the euro, but clear hints by the ECB chief that another rate rise could come in June reassured investors that they were not wrong to expect the bank's gradual monetary tightening to continue.
By 0805 GMT, the euro had weakened 0.3 percent on the day to $1.2180- well off a seven-month peak of $1.2333 hit before the ECB's remarks on Thursday.
It was down nearly half a percent at 143.25 yen, having on Thursday hit its highest level since the launch of the single currency in January 1999 at 144.92.
Euro selling continued as some market players also sought to reduce their long-euro positions ahead of a U.S. employment report due at 1230 GMT.
Economists in a Reuters poll expect the non-farm payrolls data to show a gain of 190,000 jobs in March, compared with an increase of 243,000 jobs a month earlier. The unemployment rate is forecast to hold steady at 4.8 percent.
Investors will look to the U.S. payrolls data to gauge the state of the U.S. economy and for clues on how much longer the Federal Reserve wil continue its monetary tightening campaign.
Recent comments by Fed officials have fuelled speculation that the end of a nearly two-year long tightening policy could be in sight, putting pressure on the dollar. The Fed has raised rates 15 times since mid-2004, pushing its funds rate to 4.75 percent.
Adding to the dollar's woes, Chicago Fed President Michael Moskow said on Thursday the United States faces a risk that Asian central banks which are still hungry for U.S. assets will one day reach their limit and reinvest at home.
Talk of diversification out of dollars in Asia and the Middle East had put an extra burden on the dollar earlier this week.
The dollar was little changed versus sterling at $1.7510 and 0.14 percent weaker against the yen at 117.59.
Nevertheless, the dollar was seen firmly supported between 115.50 and 119.50 yen -- a range for the past two months that most traders think will persist into the near future.
Counting on such range-bound trade, some speculators have resumed yen carry trades, dealers said. In such trades investors borrow the Japanese currency at near-zero interest rates and invest in higher-yielding currencies, such as the dollar.
Expectations that the Bank of Japan will start tightening credit in the third quarter of this year have boosted 10-year Japanese government bond yields by about 50 basis points in the past three months.
ECB President Jean-Claude Trichet surprised investors on Thursday, following the bank's decision to hold interest rates at 2.5 percent, when he said the ECB disagreed with markets which had priced in a 100 percent probability of a move next month.
This triggered a sell-off in the euro, but clear hints by the ECB chief that another rate rise could come in June reassured investors that they were not wrong to expect the bank's gradual monetary tightening to continue.
By 0805 GMT, the euro had weakened 0.3 percent on the day to $1.2180- well off a seven-month peak of $1.2333 hit before the ECB's remarks on Thursday.
It was down nearly half a percent at 143.25 yen, having on Thursday hit its highest level since the launch of the single currency in January 1999 at 144.92.
Euro selling continued as some market players also sought to reduce their long-euro positions ahead of a U.S. employment report due at 1230 GMT.
Economists in a Reuters poll expect the non-farm payrolls data to show a gain of 190,000 jobs in March, compared with an increase of 243,000 jobs a month earlier. The unemployment rate is forecast to hold steady at 4.8 percent.
Investors will look to the U.S. payrolls data to gauge the state of the U.S. economy and for clues on how much longer the Federal Reserve wil continue its monetary tightening campaign.
Recent comments by Fed officials have fuelled speculation that the end of a nearly two-year long tightening policy could be in sight, putting pressure on the dollar. The Fed has raised rates 15 times since mid-2004, pushing its funds rate to 4.75 percent.
Adding to the dollar's woes, Chicago Fed President Michael Moskow said on Thursday the United States faces a risk that Asian central banks which are still hungry for U.S. assets will one day reach their limit and reinvest at home.
Talk of diversification out of dollars in Asia and the Middle East had put an extra burden on the dollar earlier this week.
The dollar was little changed versus sterling at $1.7510 and 0.14 percent weaker against the yen at 117.59.
Nevertheless, the dollar was seen firmly supported between 115.50 and 119.50 yen -- a range for the past two months that most traders think will persist into the near future.
Counting on such range-bound trade, some speculators have resumed yen carry trades, dealers said. In such trades investors borrow the Japanese currency at near-zero interest rates and invest in higher-yielding currencies, such as the dollar.
Expectations that the Bank of Japan will start tightening credit in the third quarter of this year have boosted 10-year Japanese government bond yields by about 50 basis points in the past three months.
# posted by Dr Search- Principal Consultant at the Search Clinic @ 1:25 PM 0 comments
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Thursday, April 06, 2006
All quiet on the Central Bank front?
The roller coaster behaviour of the US Dollar eased a little yesterday and instead it was the recently stagnant euro which caught the markets attention as it finally broke out of a 15 month range. With both the MPC and the ECB both announcing their rate decisions today, we await to see how much longevity, the re awakening of the euro proves to have.
In the first of two Interest rate announcements, noon today sees the MPC make their monthly announcement. Expectation is for base rate to remain at 4.50% on the basis that inflation is on target and Q1 GBP growth is likely to be around the recent trend. In addition the March meeting voted 8 to 1 in favour of no change.
The hawkish rhetoric from lat months ECB press conference means that an additional 25 bp rate hike is on the horizon and should not be totally ruled out for this month. However, market expectation is for rates to remain unchanged.
In addition this afternoon, there is the release of the weekly US jobless claims. Market expectation is for a figure of 305,000 up slightly from last weeks 302,000.
In the first of two Interest rate announcements, noon today sees the MPC make their monthly announcement. Expectation is for base rate to remain at 4.50% on the basis that inflation is on target and Q1 GBP growth is likely to be around the recent trend. In addition the March meeting voted 8 to 1 in favour of no change.
The hawkish rhetoric from lat months ECB press conference means that an additional 25 bp rate hike is on the horizon and should not be totally ruled out for this month. However, market expectation is for rates to remain unchanged.
In addition this afternoon, there is the release of the weekly US jobless claims. Market expectation is for a figure of 305,000 up slightly from last weeks 302,000.
# posted by Dr Search- Principal Consultant at the Search Clinic @ 8:47 AM 0 comments
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Tuesday, April 04, 2006
Loans rates drift higher in slow market
On Monday, 10 year yields hit a near four year high of 4.909 per cent but by late morning on Tuesday T Bonds had eased to 4.858 per cent, down 0.8 basis points on the day.
Shorter-dated Treasuries were stronger ahead of speeches by Federal Reserve officials amid speculation that the overall tone could be slightly dovish. Two-year yields were off 2.1bp at 4.833 per cent.
But strategists warned against expecting any significant rally in short-dated paper since a further quarter-point interest rate rise is almost fully priced in for the Fed’s next meeting in May. This would take the Fed funds rate to 5 per cent, making it very likely the two-year yield will follow suit.
Eurozone government bonds remained on the back foot as investors positioned themselves for further rate rises by the European Central Bank, which meets on Thursday.
While a move is not expected at this meeting, the market is pricing in the chance of another rate rise as early as May following recent strong economic data.
In late trade the yield on the 10-year Bund was up 3bp at 3.839 per cent.
Gilts recovered from an early sell-off, but the overall performance was mixed.
Longer-dated bonds rallied, helped by strong demand for £2bn of 50-year conventional bonds. The paper was sold at a yield of 3.96 per cent and received bids worth 1.72 times the amount on offer.
Fifty-year yields were 1.3bp lower at 3.957 per cent as London traders headed home. Two-year yields, however, were up 1bp at 4.471 per cent. Data showing a steep jump in home equity withdrawal fuelled speculation that any consumer boom would have to be curbed by rate rises.
Japanese government bonds rose, sending the yield on the benchmark 10-year bond down 0.5bp to 1.840 per cent as stock market falls outweighed the impact of a weak sale of new 10-year notes.
Demand for the new paper was soft, despite the 1.8 per cent coupon - the highest since August 2004. Strategists said investors were cautious ahead of a Bank of Japan meeting next week which could give further clues as to the timing of any rise in interest rates.
Shorter-dated Treasuries were stronger ahead of speeches by Federal Reserve officials amid speculation that the overall tone could be slightly dovish. Two-year yields were off 2.1bp at 4.833 per cent.
But strategists warned against expecting any significant rally in short-dated paper since a further quarter-point interest rate rise is almost fully priced in for the Fed’s next meeting in May. This would take the Fed funds rate to 5 per cent, making it very likely the two-year yield will follow suit.
Eurozone government bonds remained on the back foot as investors positioned themselves for further rate rises by the European Central Bank, which meets on Thursday.
While a move is not expected at this meeting, the market is pricing in the chance of another rate rise as early as May following recent strong economic data.
In late trade the yield on the 10-year Bund was up 3bp at 3.839 per cent.
Gilts recovered from an early sell-off, but the overall performance was mixed.
Longer-dated bonds rallied, helped by strong demand for £2bn of 50-year conventional bonds. The paper was sold at a yield of 3.96 per cent and received bids worth 1.72 times the amount on offer.
Fifty-year yields were 1.3bp lower at 3.957 per cent as London traders headed home. Two-year yields, however, were up 1bp at 4.471 per cent. Data showing a steep jump in home equity withdrawal fuelled speculation that any consumer boom would have to be curbed by rate rises.
Japanese government bonds rose, sending the yield on the benchmark 10-year bond down 0.5bp to 1.840 per cent as stock market falls outweighed the impact of a weak sale of new 10-year notes.
Demand for the new paper was soft, despite the 1.8 per cent coupon - the highest since August 2004. Strategists said investors were cautious ahead of a Bank of Japan meeting next week which could give further clues as to the timing of any rise in interest rates.
# posted by Dr Search- Principal Consultant at the Search Clinic @ 5:38 PM 0 comments
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Monday, April 03, 2006
Loans interest rate outlook sustains bond sell-off
Strengthening expectations that global interest rates will rise further threaten to prolong a sharp sell-off in the major government bond markets.
Forecasts that rates will rise faster and further than expected sent bonds sharply lower last week and yields surging. The 10-year US Treasury saw the worst weekly loss in five months and is now yielding 4.853 per cent, the highest level since the Federal Reserve started raising rates in June 2004.
The yield on the 10-year German Bund is near 15-month peaks at 3.774 per cent, the UK-gilt is yielding 4.383 per cent, the highest since last November, and 10-year Japanese government bonds are yielding 1.765 per cent, the highest in 19 months.
Some observers think yields will rise as central banks continue to tighten. It is the first time since the 1980s that central banks in the “G3” – the US, the eurozone, or its previous equivalent, and Japan – are all draining excess liquidity from the global financial system.
It is possible that we could see 10-year US Treasury yields going over 5 per cent and Bunds over 4 per cent in the next few months as long as we have the monetary tightening bias going on. The bearish trend is pretty strongly established.
There has been a dramatic shift in interest rate expectations since the beginning of the year. In January, the market had priced in a year-end Fed Funds rate of 4.75 per cent with a 50 per cent chance of it being lower.
Now 5 per cent is fully priced in along with almost a 50 per cent chance of 5.25 per cent. The Fed raised rates by another quarter point to 4.75 per cent last week but signalled more to come.
Neither the European Central Bank nor the Bank of England are expected to make changes when they make their rate decisions this week. But the market is pricing in more aggressive moves in the eurozone, with the next rise coming as early as May, and rates rising to as much as 3.5 per cent by the year-end from the current 2.5 per cent.
Forecasts that rates will rise faster and further than expected sent bonds sharply lower last week and yields surging. The 10-year US Treasury saw the worst weekly loss in five months and is now yielding 4.853 per cent, the highest level since the Federal Reserve started raising rates in June 2004.
The yield on the 10-year German Bund is near 15-month peaks at 3.774 per cent, the UK-gilt is yielding 4.383 per cent, the highest since last November, and 10-year Japanese government bonds are yielding 1.765 per cent, the highest in 19 months.
Some observers think yields will rise as central banks continue to tighten. It is the first time since the 1980s that central banks in the “G3” – the US, the eurozone, or its previous equivalent, and Japan – are all draining excess liquidity from the global financial system.
It is possible that we could see 10-year US Treasury yields going over 5 per cent and Bunds over 4 per cent in the next few months as long as we have the monetary tightening bias going on. The bearish trend is pretty strongly established.
There has been a dramatic shift in interest rate expectations since the beginning of the year. In January, the market had priced in a year-end Fed Funds rate of 4.75 per cent with a 50 per cent chance of it being lower.
Now 5 per cent is fully priced in along with almost a 50 per cent chance of 5.25 per cent. The Fed raised rates by another quarter point to 4.75 per cent last week but signalled more to come.
Neither the European Central Bank nor the Bank of England are expected to make changes when they make their rate decisions this week. But the market is pricing in more aggressive moves in the eurozone, with the next rise coming as early as May, and rates rising to as much as 3.5 per cent by the year-end from the current 2.5 per cent.
# posted by Dr Search- Principal Consultant at the Search Clinic @ 9:33 AM 0 comments
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