The difference between short-and long-term U.S. Treasury yields, known as the yield curve, fell to the lowest level since 2012 on speculation the Federal Reserve will hike interest rates sooner than expected while inflation remains muted. The 2-year Treasury yield rose 1 basis point to 0.49%, while the 30-year Treasury yield slid 3 basis points (bps) to 3.02%. Accordingly, the gap between them shrank to 2.53% (or 253 bps), the least level since November 2012.
Domestic and foreign investors pulled out €187.7 billion ($239 billion) from euro area fixed-income assets in the six months through August, the most in European Central Bank data going back to the currency’s introduction in 1999. Record pace of bond outflows helped to push the euro down 2.6% versus a basket of 9 mature-market counterparts this year, the steepest depreciation since 2010, when the region’s sovereign debt crisis was taking hold.
China’s benchmark stock gauge posted its biggest weekly slid in four month amid concerns over the negative impacts of IPO sales on existing shares and slowing corporate earnings. Growing worries over a planned trading link between Shanghai and Hong Kong stock markets will be delayed also weighed on Chinese shares. The Shanghai Composite Index fell 1.7% this week, the most since the week ending June 20. Nine IPO transactions are marketed for this week which may attract more than 700 billion yuan of investor bids.
The prospects of European Central Bank corporate-bond purchase weighed negatively on the euro and boosted European shares. The shared currency weakened against most of its 16 major counterparts as the ECB started to buy covered bonds and the private-sector report suggested that the ECB is considering expanding stimulus by purchasing corporate debt to bolster the euro-zone economy. Meanwhile, the Stoxx Europe 600 stock index advanced 2.1% in afternoon trading after falling to its lowest level of 2014 last Thursday.
Portugal led a sell-off in euro area’s high-yielding government bonds on Monday amid increased recession fears. The Portuguese 10-year bond yield soared 15 basis points (bps) to 3.46%, while the comparable Italian bond yield jumped 10 bps to 2.6%, extending last week’s rise of 17 bps. Greek bonds declined as well, extending losses that triggered a sell-off in the periphery last week. In contrast, safe-haven German bunds advanced, with the 10-year yield sliding 2 bps to 0.84%.
|Remittances to developing countries are on course for 5.0 percent growth this year, faster than the 3.4 percent growth recorded in 2013. The acceleration is driven largely by expanding flows to Asia and Latin America. Remittances to developing countries are expected to continue climbing over the medium-term, reaching $454 billion in 2015. The cost of sending remittances is falling, but remains high along key corridors, especially to countries in Sub-Saharan Africa.|
Developing-country stocks and currencies tumbled on Thursday amid deepening worries over slowing global growth. The MSCI emerging market stock index slumped 1.2% with Indian shares dropping to a 2-month low, while the benchmark gauge that track 20 developing-country currencies fell 0.6% with the Russian ruble sliding to a fresh record low. Oil prices continued to decline as well with West Texas Intermediate (WTI) crude fell below $80 a barrel for the first time since June 2012.
High Income Economies
China has been pursuing a comprehensive program of structural reforms since November 2013. The program aims to rebalance the economy from its reliance on investment toward consumption.
U.S. Treasuries slid for a fourth week as the market welcomed the dovish tone of September’s FOMC minutes. The FOMC minutes stressed risks that external demand growth and the surging dollar might curtail growth and inflation in the U.S.. The benchmark 10-year yield has declined 13 basis points this week, the most since the week ended March 14. The yield has reached 2.28% yesterday, the lowest since June last year.
Yields on the benchmark U.S. 10-year Treasuries were trading at near-lowest level in 15 months as mounting concerns over slowing global growth boosted the safe-haven appeal for the U.S. government debt. The U.S. 30-year yields also reached the lowest level since May 2013 before a $13 billion auction of the 30-year securities today. European bond yields from France to Portugal fell to record lows after German exports dropped the most in August since 2009.
European and Asian stock markets slumped on Wednesday amid heightened concerns over global economic growth. Investors are reacting to more evidences of weak growth as economic data from China, Spain, and Germany seemed to support the gloomy global outlook painted by the International Monetary Fund on Tuesday. U.S. equities opened lower with the S&P 500 index falling to an eight-week low in morning trade. The benchmark MSCI world stock index slid to its lowest level since mid-April.
German government bonds gained on Monday as a report showed the country’s factory orders recorded the worst single-month drop since 2009, spurring worries over the slowdown of Europe’s biggest economy. German benchmark 10-year yields fell as much as 3 basis points (bps) to 0.90%. In contrast, government bonds from high-yielding European countries fell with 10-year yields on Italian, Spanish, and Greek debt all climbing.
Russia’s real GDP expanded 0.8 percent (y/y) in the second quarter of 2014, its lowest growth rate in five quarters, slowing from the first quarter’s modest 0.9 percent (y/y) expansion. An intensification of geopolitical tensions would create additional risks to growth and more subdued investment and consumption spending could see the economy flip into a protracted recession.
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U.S. Treasuries fell on Thursday, giving up some of the largest gains in 8 months achieved yesterday, amid speculation tomorrow’s jobs data will show U.S. labor market is further strengthening. The benchmark 10-year yield climbed 4 basis points (bps) from the four-week low level to 2.43%. German government bonds declined as well, ending a six-day gain, as the ECB’s plan to buy asset-backed securities failed to convince markets it would revive the monetary union’s economy.
Amid weakening Asia and Europe factory activities, growing concerns that global growth is stalling, and increasing appeal for safe-haven U.S. government debt, U.S. Treasuries prices advanced the most in six weeks on Wednesday. Unexpected slowdown of U.S. manufacturing growth in September, according to an industry report, also added to concerns about faltering global growth. The benchmark 10-year note yield slid 8 basis points (bps) to 2.41%, the steepest drop since August 15.