The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Bond Outlook June 13th

The USD vulnerability we expected has not happened but bonds and stocks have proven very sensitive to higher yields. We offer our explanation in terms of surplus countries’ investments.

Bond Outlook [by bridport & cie, June 13th 2007]

Various reasons have been put forward to explain the sharp rise in yields at longer maturities. One is the fear of inflation, which echoes the worries of Bernanke. Another is a reduction in liquidity, blamed on growth of the world economy sucking up funds for working capital at an increasing rate. This is an argument we have some difficulty absorbing; it is largely based on the observation that TIPS are not suggesting much future inflation. Our own explanation is the shift in the focus of investment of the surplus countries’ reserves from T-Bonds to a range of other investment instruments. In the first instance this move affects yields, but not the USD rate of exchange. In all probability the Chinese and other central banks are too wise to play diversification from USD at the same time as diversification from T-bonds. Many national reserves have already been re-shuffled in terms of currency balance. That may suffice for a few months, while “sovereign investment corporations” play their hand. We were frankly surprised by the improvement in the USD exchange rate, but long-term adjustment is bound to be accompanied by recoveries in an overall downward secular trend.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree