This page has been archived and commenting is disabled.
Global Bond Rout Returns With A Vengeance; 10Y Treasury Tumbles Under Key Support; Futures Pounded
It all started again in Asia, although not in China where the berserker mania bid for stocks has returned and the SHCOMP is now up nearly 5% in the past two days following the PBOC's latest easing, but in Japan where once again the massively illiquid JGB market, of which the BOJ owns roughly a third as of this moment, is going through yet another shock period (if not quite VaR yet) with last night's 10 Year JGB auction seeing the lowest Bid to Cover since 2009.
This was the beginning, and promptly thereafter bond yields around the globe spiked once more, with 10-year Treasury yields climbing to a five-month high, as the global rout in debt markets deepened. The biggest casualty so far is the Bund, which having retraced some of the flash crash losses from two weeks ago is once again in panic selling mode, and while not having taken out the recent 0.8% flash crash wides, traded just shy of 0.75% this morning.
Germany’s 10-year bund yield, the euro area’s benchmark, rose 12 basis points to 0.73 percent and Japanese yields also increased.
Just as notably, treasury bond yields have also spiked, jumping seven basis points to 2.35% and breaching the 2.32% support zone we noted last week. Recall: "in the instance of 2.27%2.32% is breached, the sell-off would extend further, probably at a fast pace, towards 2.40% and 2.47% next."

With the support now breached, freefall came next and sure enough:
- 10Y TREASURY YIELD RETRACES 50% OF 2014-2015 DECLINE
- 30Y TREASURY YIELD RETRACES 50% OF 2014-2015 DECLINE
Needless to say, the bond rout has spread to all core and peripheral European markets as well, in what increasingly more as suggesting is merely the ECB selling off bonds in a somewhat "uncontrolled" manner just so it can continue doing QE for another 15 months, instead of being stopped out by -0.20% yields across all curves. It remains to be seen if this too "conspiracy theory" is proven right.
And since in recent day, the bond and equity markets are tied to the hip, US equity futures are sliding fast and confirming once again that Dennis Gartman's newsletter - in both comedic and market fade timing - is unparalleled. Our advice: wait for Gartman to urge being comfortably short in paper money terms here before BTFD.
In any event, European fixed income products have been a key focus for market participants with Bunds (-160 ticks) drifting lower in a continuation of the move seen yesterday with USTs subject to spillover selling from Bunds and heavy corporate issuance this week from the US. Sentiment for fixed income products was also dampened overnight following today’s 10yr JGB auction, which printed the lowest b/c in 6-years. Expectations originally had been for the 10yr JGB auction to be more successful, with Thursday's 30yr auction more a focus for concern. On a technical note, Bund June'15 future contracts currently reside below the 50% retracement (152.24) between last week’s low and yesterday's high, while US 10yr and 30yr yields both trade above the 50% level of the 2014/15 decline.
Higher European yields have continued to weigh on European equites (Euro Stoxx -1.7%) given the subsequent implications for European borrowing costs with macro newsflow otherwise relatively light. Today’s downward pressure has seen
the FTSE 100 (-1.7%) give back all post-election gains, while on a
sector specific basis, defensive stocks lead the way lower while the DAX (-2.1%) is partially weighed on by BMW (-3.0%), after Audi overtook BMW in luxury car sales in April.
Higher European yields have provided the EUR with some upside this morning with EUR extending on its gains after breaking through 1.1200 to the upside, tripping light Asian based stops and the 100DMA at 1.1219. GBP has shrugged off reports suggesting the UK could consider an EU referendum as soon as 2016 to avoid conflict with French and German elections. Instead GBP has been supported by a beat on expectations for UK industrial & manufacturing data (UK Manufacturing Production (Mar) M/M 0.4% vs. Exp. 0.3%, Prev. 0.4%, Rev. 0.5% & Industrial Production (Mar) M/M 0.5% vs. Exp. 0.0%, Prev. 0.1%), with corporate and leveraged demand touted in the pair. GBP/USD broke above its 200DMA to the upside at 1.5624; with the pair having previously not traded above this DMA since Aug 2014. Elsewhere, AUD has managed to hold onto its overnight gains after breaking above 0.7900, amid cross related flows following encouraging Australian home loans and investment lending data.
In the commodity complex, energy prices have largely been swayed by the broadly weaker USD (-0.9%) with WTI (+USD 0.98) and Brent (+USD 1.21) trading higher amid light newsflow. However, despite this morning’s gains, the market has ignored a note from Goldman Sachs warning that crude prices could face selling pressure in the near-term due to rising oil stockpiles, with the recent upturn in prices leading to the possibility of US shale drillers adding to the surplus. In precious metals markets, both spot gold and silver trade relatively sideways. Today also sees APR crude oil inventories, after last week’s inventory (-1500k) showed the first drawdown in stockpiles since Jan 6th. Elsewhere, overnight iron ore reached 10 week highs after a lack of imported iron ore led to the consumption of port reserves thus driving up prices.
In summary: European shares remain lower with the autos and financial services sectors underperforming and bank, oil & gas outperforming. Most European bond yields rise, Japanese 10-year bond yield gains. U.K. industrial output exceeds forecasts, pound climbs to 2015 high. Fed’s Dudley says interest rate increases will mark regime shift The German, U.K. markets are the worst-performing larger bourses, Italian the best. Euro is stronger vs dollar. German 10yr bond yields rise; Japanese yields increase. Commodities gain, with nickel, corn underperforming and Brent crude outperforming. U.S. monthly budget statement, small business optimism, JOLT job openings due later.
Market Wrap
- S&P 500 futures down 0.7% to 2083.4
- Stoxx 600 down 1.7% to 394.6
- US 10Yr yield up 6bps to 2.34%
- German 10Yr yield up 11bps to 0.72%
- MSCI Asia Pacific down 0.2% to 151.5
- Gold spot up 0.4% to $1188.5/oz
- 6.5% of Stoxx 600 members gain, 92.8% decline
- Eurostoxx 50 -1.8%, FTSE 100 -1.7%, CAC 40 -1.6%, DAX -2%, IBEX -1.7%, FTSEMIB -0.8%, SMI -1.1%
- Asian stocks fall with the Shanghai Composite outperforming and the Sensex underperforming
- MSCI Asia Pacific down 0.2% to 151.5; Nikkei 225 little changed%, Hang Seng down 1.1%, Kospi down 0%, Shanghai Composite up 1.6%, ASX up 0.9%, Sensex down 2.4%
- Euro up 0.99% to $1.1265
- Dollar Index down 0.73% to 94.32
- Italian 10Yr yield up 10bps to 1.87%
- Spanish 10Yr yield up 11bps to 1.86%
- French 10Yr yield up 11bps to 1.01%
- S&P GSCI Index up 1.3% to 447.9
- Brent Futures up 2.1% to $66.3/bbl, WTI Futures up 1.8% to $60.3/bbl
- LME 3m Copper up 1.1% to $6432.5/MT
- LME 3m Nickel down 1.1% to $14120/MT
- Wheat futures down 0.1% to 480.5 USd/bu
Bulletin Headline Summary from Bloomberg and RanSquawk
- Bunds drift lower in a continuation of the move seen yesterday with USTs subject to spillover selling from Bunds
and heavy corporate issuance this week from the US. - European yields have continued to weigh on European equities given the higher borrowing costs for European
companies, with FTSE lower by 1.7%, giving back all post-election gains. - GBP trades above its 200 DMA, bolstered by strong UK industrial & manuf
- Treasuries slide led by long-end as rout in EGBs continues; quarterly refunding begins today with $24b 3Y notes, WI yield 1.06% vs 0.865% in April, 1.104% in March.
- Although the timing is uncertain, the Fed’s first rate increase since 2006 will usher in a “regime shift” that will stir financial markets when it occurs, said New York Fed President William C. Dudley
- Greece handed the ECB an excuse to maintain life support for its financial system by persuading its skeptical German-led creditors it’s serious about delivering the policies needed to escape a default
- Greece used up ~EU650m reserves from its SDR IMF holdings account to meet loan payment of ~EU750m due to IMF today, Kathimerini newspaper reports, without citing anyone; Reserves kept in IMF holdings account need to be replenished within one month
- IMF has signaled to Eurogroup that it doesn’t want to participate in a potential rescue of Greece, Spanish newspaper El Mundo reports
- China adopted the IMF’s standards for its latest balance of payments data as the nation seeks to obtain reserve-currency status for the yuan
- Japan sold 2.4t yen ($20b) in 10Y bonds at average yield of 0.434%, highest since Dec. 2014; 2.24 bid-to-cover lowest since Feb. 2009, down from 2.75 at previous auction
- U.K. industrial production rose 0.5% in March, the most in six months and higher than forecasts for no change
- A magnitude 7.3 earthquake struck Nepal on Tuesday less than three weeks after a temblor killed more than 8,000 people in the Himalayan nation
- Sovereign bond yields surge. Asian stocks mostly higher, European stocks tumble, U.S. equity-index futures decline. Crude oil, gold, copper higher
US Event Calendar
- 9:00am: NFIB Small Business Optimism, April, 96.0 (prior 95.2)
- 10:00am: JOLTS Job Openings, March (prior 5.133m)
- 2:00pm: Monthly Budget Statement, April, est $138b (prior $106.9b)
Central Banks
- 12:45pm: Fed’s Williams speaks in New York
- 5:05pm: Reserve Bank of New Zealand’s Wheeler holds news conference in Wellington
DB's Jim Reid concludes the overnight recap
Most bond markets in Asia this morning have generally tracked yesterday’s weakness with 10y yields in Japan (+4.6bps), Hong Kong (+5.8bps), South Korea (+4.3bps) and Australia (+13.6bps) higher as we go to print. It’s a bit more muted in the Treasury market meanwhile with the 10y benchmark yield (-0.7bps) modestly paring back some yesterday’s lurch higher in yield. Elsewhere equity markets are trading with little obvious direction with the Nikkei (-0.38%) and Hang Seng (-0.32%) both lower and the Shanghai Comp (+0.66%) and ASX (+0.68%) firmer. Credit markets in Asia are around a basis point wider.
The weakness in Treasuries was in fact led by the longer end yesterday with the yield curve bear steepening. 30y yields finished 14bps higher to close back above 3% at 3.041% for the first time since December 2nd. The closing level is the highest since November 20th. 5y Treasuries meanwhile closed 11.2bps higher at 1.601%. As mentioned the sell-off appeared to be a continuation of the weakness in the Europe session with the rally that we saw in Bunds on Friday lasting for all of one day. Yesterday 10y Bund yields closed 6.3bps higher at 0.608% and in other developed bond markets Netherlands (+6.5bps), Sweden (+5.0bps), Switzerland (+1.8bps) and France (+6.5bps) all saw yields moves higher. Peripherals also softened with Italy (+9.1bps), Spain (+8.3bps) and Portugal (+8.9bps) was once again underperforming.
In terms of Greece yesterday and specifically the Eurogroup meeting, as we’d come to expect, there was little material new news to come out of the meeting. Instead, the commentary centered around more progress being made but not enough yet to warrant a release of funds to Greece. A joint statement put out after the meeting between the two sides said that ‘we welcomed the progress that has been achieved so far’ but that ‘at the same time, we acknowledged that more time and effort are needed to bridge the gaps on the remaining issues’. Eurogroup President Dijsselbloem backed this up saying that ‘I’m not satisfied but just a bit more optimistic, the way the talks take place in the way they negotiate has been improved’. Despite Varoufakis saying that there was some considerable convergence between the sides, he reiterated the fragile liquidity situation that Greece finds itself with and when asked about a potential timeframe for when cash may run out, commented that ‘we are talking about the next couple of weeks’.
Interestingly however and with talks dragging on, German finance minister Schaeuble seemingly didn’t downplay the issue of Greece holding a potential referendum, saying that ‘if the Greek government thinks it should hold a referendum, it should hold a referendum’ and that ‘maybe it would even be the right measure to let the Greek people decide whether they’re ready to accept what needs to be done’. Any support towards a referendum from the European side will be important given the distinct possibility that Tsipras is unable to pass any sort of agreement through parliament. In the mean time and with cash seemingly close to running out, news of yesterday’s ‘progress’ and also the news that a transfer order was put in for the €750m IMF payment due today may help ease some of the worries over any potential haircut increase by the ECB tomorrow.
Away from the moves in bond markets yesterday, it was fairly subdued in markets elsewhere. The S&P 500 (-0.51%) and Dow (-0.47%) both fell while the Dollar closed 0.23% higher (DXY). In Europe equity markets were a tad more mixed with the Stoxx 600 (+0.29%) higher although the CAC (-1.23%) and the DAX (-0.31%) both fell. Energy stocks certainly contributed to the weaker showing for US equities as the component led declines (-2.05%) with Noble Energy (-6.23%) in particular weaker. The market appeared to react negatively to the news that the company is set to buy Rosetta Resources in what will be the first major shale deal since the collapse and selloff in oil - a potential early sign that M&A is returning to the sector. Oil markets actually bounced off their intraday lows but still closed down yesterday with WTI (-0.24%) and Brent (-0.73%) declining to $59.25/bbl and $64.91/bbl respectively. Gold was 0.37% lower at $1184/oz.
Fedspeak yesterday was confined to the San Francisco Fed’s Williams who suggested that the Fed should not telegraph rate hikes and instead let economic data dictate while accepting that fewer hints out of the Fed could lead to volatility in markets. As a result Williams reiterated that every meeting is a possibility and therefore on the table for liftoff, before going on to say that he expects growth to bounce back in Q2 with unemployment potentially back down to 5% or below by the end of the year. Williams, like other recent Fed commentators, noted that he believes the weak Q1 was a ‘big anomaly’.
Elsewhere, it was a very quiet day on the data front with no releases in the European session other than the Bank of England holding rates at 0.5% as expected and just a secondary release in the US session with the April labour market conditions index declining to -1.9 from -1.8 previously.
In terms of the day ahead, the calendar picks up slightly today with French business sentiment and UK industrial and manufacturing production due out this morning. Over in the US this afternoon, the April NFIB small business optimism reading is the early print and we follow this up later in the day with more employment data in the JOLTS job openings report for March and also the April monthly budget statement.
- 20313 reads
- Printer-friendly version
- Send to friend
- advertisements -



I wonder if this is the big one. I've been fooled before but I know one thing is for sure at some point it the debt bubble will pop and it will be ugly when it does.
Yep... Rivets starting to pop.
It's going down fast..
Define fast..this has been the slowest moving train wreck. Maybe I am just anxious or expect yet another rabbit pulled from the hat.
Just put your helmet on, fasten your seat belt and quit asking questions.
https://www.youtube.com/watch?v=gEDpTidAPwU
I expect one more rabbit to be pulled out before it all comes crashing down in September-October.
I'm really starting to believe in this seven year cycle(Shemitah) shit... If it doesn't happen this year then I dunno what to say.
Buy the Fucking dip. Wait for the blow off top
Funny how Krugman breaking all those windows hasn't fixed any of this ;-)
Hey, Give him a chance.
He just caused another major quake in Nepal.
You fool! That's because too little was done. Mere trillions weren't enough.
That's what's bugging me about Krugman: he'll always simply say that not enough was done to save the world economy - I hope he'll be lecturing in some Japanese university when it all blows, though: that'll be fun to watch.
krugman for fed res chair! that will fix it...
If you bought a 10 year Bund a couple weeks ago at 0.10% yield, the drop in price to get to where it is now wipes out about 20 years worth of interest payments (which, of course, is impossible since its only a 10 year bond, but you get the idea). It's early and I'm doing this in my head, but I think that's roughly right.
it is futures/options expirations week after all - if you can push anything to the direction your bets are placed, why not?
and treasury auctions...
Did the tide just go out ???
with macro data so poor, why are bond yields rising?
The ECB...is selling bonds...so that they can buy bonds???
I still believe rates hikes from the Fed is just talk. They know they can't raise rates or their would be debt defaults left and right. Rates hikes would lead us to a worldwide depression.
The only tool the Fed has left is talking about raising rates without ever actually doing it.
the Fed wants to raise the discount rate so it has the ability to lower it again. the system cannot handle at 10yr tsy at 3.5%. per keynesian logic rates must be lower than the rate of growth....otherwise death spiral ensues.
they would like you to believe rates are going up b/c everything is awesome. but there is a key diff in demand-pull cost of capital and pushing on a string
hey, cue japs buy til it fails program. buys years of can kick. they have the majic checkbook. just digital fiat that still has the faith. what else you gonna do? pay your bills with silver or gold? ha...
"lower than the rate of growth" -- still believe in infinite growth in a biosphere with finite resources?
LOL! Good luck with that.
The global depression has already begun. And they know it.
They don't want to be the ones who knock the risk asset markets (no shortage of bubbles) off the rails.
I thought the FED wasnt raising rates till ths summer?
so if one assumes, very low interest rates are the primary concern of the banking system, aka 'cheap credit/liquidity'....are the CBs willing to withdraw support from equities, perhaps a short sharp 8% decline to push people to safety of govt bonds?? rinse and repeat a few times and we have -25% on stocks and yeilds 'rising due to expanind global economy' (future headline)
Flashers Bitchez!
"a transfer order was put in"
aka
"The cheque is in the mail"
lmao
Vigilantires finally awake from their long nap?
Let me know when the Fed starts to sell their hoard of "worthless" bonds....
Let me know when that paper is "pounded" to zero. < yawn >
LOUD NOISES!
-Brick
Okay, so I know that most everyone who posts here is already in-the-know, but I'm totally lost.
After all my reading about finance, bonds, etc., I'm still lost as to who compiles these yield and how the yields are derived.
I understand bonds issued with an interest rate, a discount and premium price, etc., but when I read the opening for this article (Having briefly tested above 3.00% on Thursday . . . the post-payrolls reaction continues today with 30Y yields up 9bps and back above the 3.00% Maginot Line), I'm still left asking who or what is deteriming the yield, and how is it being determined, on the fly? What are the indexes and formulas used to determine such? Who's in charge of determinng such?
Sorry, it's just one of those things for which I've never been able to find an answer. It's been one of those mysteries I've never solved.
The nominal 30Y bond yield (like all bonds that have a coupon) is the result of an open market (with a bid and ask spread) for the securities themselves. The yield is determined by the resulting security price (displayed in US$ per $100 of face value of bond). Based on the last price, the yield is calculated based on the coupon return of the bond (a fixed payment to the bond holder on a periodic basis) divided by 10 times the last bid price per $100 face value of the bond. (This reflects the fact that the bond is usually denominated in $1000 of face value per security, so the price per $100 needs to be multiplied by 10 to get the actual price of the bond in dollars).
Yield to maturity, is a little more complicated, because it takes into account that the price of the bond on a certain date will either sell at a discount (less that 100 per US$ 100 of face value) or premium (more than $100 per US$100 of face value). Since the holder of the bond will be paid the face value at maturity, the yield to maturity paid to the holder will be higher for a bond selling at a discount (since he paid less than face value for it at purchase), and the yield to maturity paid to the holder will be less for a bond selling at a premium (since he paid more than face value for it at purchase).
In practice, the exact calculation of yield to maturity of any security is equivalent to the discount rate for which the net present value of all future payments received from the security exactly equals its current price. This is less complicated than it sounds, is usually done by computer to report the instantaneous yields associated with real time bond price quotes, and is probably overkill for your question.
Normally market yields are quoted in yield to maturity, rather than nominal yield, because it more accurately reflects the true return to the investor.
Hope this helped.
Teutonicate,
Thanks very much for your response; however, I am familiar with how the yield, coupon rate, discounting and premium status of a bond take place. What I don't know is along the lines of your starting and ending statements:
The nominal 30Y bond yield (like all bonds that have a coupon) is the result of an open market (with a bid and ask spread) for the securities themselves. . . . . This is less complicated than it sounds, is usually done by computer to report the instantaneous yields associated with real time bond price quotes, and is probably overkill for your question.
Okay, so a 30Y bill is issued with its rate and yield. And then along comes the open market in which bidding prices take place: where does this take place? See, that's what I've been trying to nail down: who is handling the final computation (via computer) at the end of the day?
So half my question is solved: the open market influences the yield. The other half is where does this take place and who's responsible for issuing the new prices and yields?
Thanks very much. You've helped greatly.