Latest news with #StefanoRebaudo
Mint
9 hours ago
- Business
- Mint
German yield curve steepens further on expectations for more fiscal spending
By Stefano Rebaudo and Samuel Indyk June 26 (Reuters) - The German bond yield curve continued to steepen on Thursday, driven by expectations of Berlin's increased borrowing, after U.S. economic data failed to provide clear direction for government bond markets. German lawmakers on Thursday passed a multi-billion-euro package of fiscal relief measures to boost investment, part of the new government's plans to put Europe's largest economy back on track for growth. Markets are pricing in increased bond supply from Germany to fund such plans, which is expected to push longer-dated bond yields higher. Shorter maturities, in the meantime, continue to track expectations for European Central Bank rates, which have remained relatively stable. German 30-year government bond yields reached their highest level since May 26 at 3.111% and were last up 3 basis points (bps) at 3.10%. The 10-year yield was up 0.5 bps at 2.57%, and the 2-year yield – more sensitive to ECB policy rates expectations - was down 2.5 bps at 1.82%. The gap between 30-year and 2-year yields was up 6 bps on track for its biggest daily rise since early April. Deutsche Bank raised on Thursday its forecast for the German economy to 0.5% growth in 2025, and brought forward its peak growth forecast of 2.0% to 2026. "Not only is the fiscal impulse over this period likely to be more positive than we previously assumed, but the economy is also heading into this fiscal expansion with greater momentum than expected, navigating the tariff turmoil with surprising poise," Deutsche Bank chief economist Robin Winkler said. Yields on 2-year U.S. Treasury notes eased early on Thursday after the Labor Department reported a slight fall in weekly jobless claims, but higher recurring claims indicated that more people were staying out of work for longer. On Wednesday, NATO leaders agreed to boost spending on defence to 5% of GDP, but some European nations, already running large deficits, may struggle to meet the target. Germany, which has greater scope to increase spending, published its draft budget for 2025 this week, which included record investments to boost growth. Geopolitics has taken a back seat on Thursday after the ceasefire between Israel and Iran held for now. Oil prices were steady on Thursday. But there are a number of other key risk events on the horizon. U.S. President Donald Trump's 90-day pause to reciprocal tariffs ends on July 9 and it remains uncertain what will happen when the deadline passes. Trump is also pushing Republicans in the Senate to advance his tax-cut and spending bill, which also includes an extension of the debt ceiling. Republican leaders are pushing to get the bill through the Senate and onto Trump's desk before the July 4 Independence Day holiday. Italy's 10-year bond yield was down 2 bps at 3.49%, pushing the yield gap between Italian and German 10-year bonds tighter by 2 bps to 91.5 bps.
Yahoo
12-06-2025
- Business
- Yahoo
Sterling drops to six-week low against euro
By Stefano Rebaudo (Reuters) -Sterling rose against the U.S. dollar on Thursday but dropped to a six-week low against the euro, following weak economic data from the U.S. and the UK. The euro hit its highest level in almost four years against the U.S. currency as investors rushed into safe-haven assets, while remaining cautious about the impact of the U.S.-China trade deal. The downturn in British manufacturing was less steep than initially feared in May, but output, orders, and jobs continued to decline as companies cited recent tax hikes and U.S. President Donald Trump's tariffs. "Thursday's data shows the UK economy continues to face challenges," said Nick Andrews, senior forex strategist at HSBC. "Tuesday's labour market data also loosened more than expected while Wednesday's government spending review did little to lift the outlook for growth but instead turned the focus to where potential tax rises might fall in the Autumn." British government bond yields and the pound dropped on Tuesday after the release of weaker-than-expected labour market data that showed wage growth slowing to its lowest since September 2024, boosting bets on Bank of England rate cuts. The pound fell 0.6% to 85.28 pence per euro after hitting 85.37, its lowest since May 2. Analysts recently flagged that the yield spreads between the UK and the euro area pointed to sterling at 85 pence. The Bank of England meets next week, and although it is expected to stand pat on rates, money market traders added to bets for additional rate cuts this year. Money markets fully priced a 25 basis points BoE rate cut by September and 50 bps by year-end. "We see a strong possibility that the Monetary Policy Committee ditches its hawkish bias, which could pave the way for an August (interest rate) cut," said Matthew Ryan, head of market strategy at Ebury. The financial market's reaction to British Finance Minister Rachel Reeves's plans was muted on Wednesday, as many economists already expected additional taxes later this year. Sterling rose 0.4% versus the dollar to $1.3597.
Mint
12-06-2025
- Business
- Mint
Dollar hits 7-week lows, focus on rate outlook, trade talks
By Rae Wee and Stefano Rebaudo (Reuters) -The dollar slid on Thursday on heightened expectations of Federal Reserve rate cuts this year and lingering uncertainty over tariff battles. U.S. President Donald Trump said on Wednesday he would be willing to extend a July 8 deadline for completing trade talks with countries, but added the U.S. would send out letters in coming weeks specifying the terms of trade deals to dozens of other countries, which they could then embrace or reject. His comments followed earlier remarks from U.S. Treasury Secretary Scott Bessent that the Trump administration may offer extensions from a July trade deal deadline for countries negotiating in good faith. Uncertainty over what comes next for global trade, alongside scant details of a framework agreement reached between the U.S. and China this week, dampened the overall mood in markets and gave investors more reasons to sell the dollar. The broad fall in the greenback on Thursday pushed the euro to a seven-week high early in the session, before the common currency pared some gains to last trade at $1.1513. Sterling was flat at $1.3544, while the yen climbed 0.4% to 143.95 per dollar. Against a basket of currencies, the dollar fell to its weakest since April 22 at 98.246 and was last down 0.04% at 98.419. U.S. Treasury yields dropped on Wednesday as the closely watched "core" consumer prices index eased some pressure on the Federal Reserve to maintain higher interest rates for longer. Markets priced two Fed rate cuts of 25 basis points by year-end, with an 80% chance of the first move in September and 100 bps by September 2026. However, analysts remain cautious about the inflation outlook ahead of Thursday's release of the producer price index. "We suspect the core Personal Consumption Expenditures Price Index (PCE) reading will prove modestly firmer, although the result will also hinge on the inputs from core PPI," said David Doyle, head of economics at Macquarie. "Despite the subdued figures, through year-end, we expect year-on-year core inflation to remain elevated and potentially rise as price pressures flow from recent tariff implementation." Barclays estimates that May core PCE inflation could register a stronger increase, of 0.22% monthly and 2.7% yearly after incorporating the CPI data. Elsewhere, the dollar slid 0.38% against the Swiss franc to 0.8170. The onshore yuan rose 0.1% to 7.1818 per dollar, though gains were capped by the still-fragile truce in the U.S.-China trade war and the uncertainty surrounding the next moves of the two countries. The euro was clinging to strong gains on Thursday, having jumped against most other currencies in the previous session. Against the yen, the common currency last dropped 0.15% to stand at 165.88 having risen to its strongest since October at 166.42 yen on Thursday. While there was no immediate trigger behind the moves, analysts say the euro has over the past week drawn support from hawkish European Central Bank rhetoric. Last week, the ECB cut interest rates as expected but hinted at a pause in its year-long easing cycle after inflation finally returned to its 2% target. That contrasts with the likely resumption of a Fed easing cycle later this year, and as Trump has repeatedly called for U.S. rates to be lowered. Trump said last week that a decision on the next Fed chief will be coming soon, adding that a good Fed chair would lower interest rates. The euro has risen nearly 11% for the year thus far, helped in part by a weaker dollar and as investors pour money into European markets in a move away from the U.S. (Reporting by Rae Wee and Stefano Rebaudo; Editing by Jacqueline Wong and Toby Chopra)
Yahoo
03-06-2025
- Business
- Yahoo
G7 debt is now a pressure point for anxious markets
By Stefano Rebaudo, Linda Pasquini and Yoruk Bahceli LONDON (Reuters) -Surging government debt levels are becoming a pressure point for big economies and bond investors have their sights on those not doing enough to improve their finances. A Moody's decision to strip the United States of its last triple-A credit rating last month and weak demand for Japanese auctions moves attention to two of the world's biggest economies. A debt crisis may not be the base case, but warning bells are starting to ring. Here's a look at who's in the spotlight for markets and why: 1/ USA The United States has shot to the top of the worry list after a sharp bond sell off in April. Adding to concerns is President Donald Trump's tax and spending bill, which could add roughly $3.3 trillion to debt by 2034, according to nonpartisan think tank the Committee for a Responsible Federal Budget. The Moody's decision is another blow, while JP Morgan CEO Jamie Dimon warns of a "crack in the bond market" partly due to overspending. Its status as the world's No.1. reserve currency offers the U.S. some protection and Treasury Secretary Scott Bessent says the country will never default. And investors reckon authorities will prevent 10-year yields, the benchmark for borrowing costs for companies and consumers, from rising too far above 4.5%. The banking industry is optimistic that U.S. regulators could soon revamp the supplementary leverage ratio, potentially reducing the cash reserves banks must hold and encouraging them to play a larger role in Treasury market intermediation. 2/ Japan For years Japan was the textbook case of how markets could shrug off a mammoth debt pile. Now that's changing. Japan's public debt at more than twice its economy is the biggest among developed economies. Its longer-dated bond yields hit record highs in May after a 20-year bond sale resulting in the worst auction result since 2012 cast doubt on demand. Thirty-year borrowing costs have jumped 60 basis points (bps) over the last three months, even faster than in the U.S. The culprit: waning demand for longer-dated paper from traditional buyers like life insurers and pension funds at a time when the bond holdings of the Bank of Japan, which holds roughly half the market, fell for the first time in 16 years. Prime Minister Shigeru Ishiba meanwhile faces pressure for big spending and tax cuts. Policymakers are already considering trimming super-long bond sales, temporarily soothing market concerns. Still, another poor auction last week suggests they may be deeper rooted. "The weak Japanese auctions are a symptom that something is happening underneath," said Nordea chief market strategist Jan von Gerich. 3/ UK In Europe, Britain, with debt near 100% of GDP, remains vulnerable to global bond selloffs even as it stresses fiscal discipline. Finance minister Rachel Reeves' multi-year spending review next week could be the next test for the only G7 economy with 30-year borrowing costs above 5%. The government appears prepared to spend more on defense and health, among others, Rabobank strategist Jane Foley said, even as it pledges not to increase taxes and keep spending tight. The IMF urged Reeves to stick to plans for lower public borrowing. An earlier end to active Bank of England bond sales would potentially support the gilt market, said Sam Lynton-Brown, global head of macro strategy at BNP Paribas. 4/ France Pressure in France's bond market, driven last year by concern that political instability would hamper belt tightening efforts, has abated. The risk premium investors demand for holding French debt over Germany's has eased to around 66 bps from 90 bps in November. Furthermore, investors have positioned for a drop in euro area risk premiums, helped by expectations that European countries will step up cohesion on areas such as defense. Still, caution is warranted. Prime Minister Francois Bayrou plans to announce a four-year deficit-cutting roadmap in July, which could set the scene for budgetary warfare in parliament. "France has not had any improvement on the debt side since the COVID crisis," said Carmignac fixed income fund manager Eliezer Ben Zimra. 5/ Italy Italy has moved down the worry list thanks to increased political and economic stability and improved creditworthiness. Its budget deficit dropped to 3.4% of output in 2024 from 7.2% in 2023, and is forecast to fall to 2.9% in 2026, matching projections for Germany, noted Kenneth Broux, head of corporate research FX and rates at Societe Generale. "This was unheard of many years ago." Broux said that while Italy still has challenging long-term debt dynamics, a relatively better performance compared to countries such as France and diversification in favour of European assets supported its bonds. The Italy/German 10-year bonds yield gap is near its narrowest since 2021 at just under 100 bps. Sign in to access your portfolio
Yahoo
30-05-2025
- Business
- Yahoo
Analysis-German Bund anchor can shield euro area from excessive curve steepening
By Stefano Rebaudo (Reuters) -A global selloff in government bonds due to concerns over high debt and bond sales has not left the euro zone unscathed, but Germany's growing safe-haven status should shield the bloc from an excessive rise in long-term borrowing costs. Major bond markets from the United States to Japan and Europe have seen their bond curves steepen sharply - meaning long-term bond yields have risen faster than short-term yields - a challenging environment for issuers. Germany's 30-year bond yields have jumped around 40 basis points so far this year, in a move largely driven by the creation of a 500 billion euro ($546 billion) infrastructure fund and an easing of strict borrowing rules to help lift defence spending. Yet investors and analysts say that a sharp steepening across euro-area bond markets is likely to fade from here, as a relatively better debt trajectory for Germany and global tariff uncertainty bolsters the safe-haven appeal of Bunds. In an early indication of the trend, the gap between 2-year and 10-year German bond yields looks set to end May with its first monthly drop in over a year, sliding seven basis points (bps) to 74 bps. An increase in the curve slope can create challenges for highly indebted countries, which will face higher costs when they issue new bonds, as recent weak auction results in Japan and the United States highlight. It can also complicate the monetary policy outlook by triggering an unwanted tightening of financial conditions. But in Germany's case, the steepening pressure is easing for a few reasons. Higher bond supply is now priced in. Tariff uncertainty means the European Central Bank is likely to remain in easing mode. And, compared to its peers, German debt dynamics make it a better place to park cash in times of stress. Amundi's global fixed income investment officer Gregoire Pesques said Europe's biggest asset manager had taken profit on some curve steepening trades. "In Germany, we are short 2-year bonds, short the 30-year bond, and long the 10-year bond," he said. Pesques mentioned the possibility of a more dovish than expected ECB outlook given low energy prices and a strong euro, adding there was a lack of appetite for 30-year bonds as a repricing of expectations for more bond supply is under way. The euro is up around 9% this year against the dollar, and oil prices have fallen around 13%, helping dampen inflation. Konstantin Veit, portfolio manager at bond giant PIMCO, said he saw a plausible new range of 2.5 to 3.5% for 10-year Bund yields given German fiscal plans, assuming an ECB policy rate of 2%. Germany's 10-year Bund yield is trading around 2.5%, up around 15 bps so far this year, while its UK and U.S. peers are down eight and 15 bps respectively. Germany's yield curve is currently steeper than the United States' because the ECB has almost completed its easing cycle, while the U.S. Federal Reserve is expected to cut rates mostly in 2026, analysts said. STRONGEST LINK Debt sustainability is also on investors' minds after the U.S. suffered a sharp bond selloff in early April, with investors questioning the safe-haven status of U.S. Treasuries. Since then, ratings agency Moody's has stripped the United States of its remaining triple-A credit rating and a recent 20-year bond sale was met with tepid demand. In contrast, though German debt is also rising, Europe's biggest economy is the only G7 member with a debt-to-GDP ratio below 100%, bolstering its safe-haven credentials. Notably, when U.S. and other major bond markets sold off in April, the Bund market held firm. Ratings agency S&P argues that German fiscal stimulus, expected to bolster long-term growth, supports the country's triple-A credit rating. Consultancy Saltmarsh Economics estimates that even without any nominal GDP growth, an extra 325 billion euros of debt would push Germany's debt-to-GDP ratio up to 70%, from current levels around 63%. And an extra 750 billion euros of debt would increase it to a still very low 80%. "Germany is unique in its fiscal conditions and has room to do more, but other (European) countries will have to compensate for higher defence spending in their budget," said PIMCO's Veit. We don't think European fiscal policy will be very expansionary in the next couple of years," he added. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
