Latest news with #U.S.Treasuries
Business Recorder
35 minutes ago
- Business
- Business Recorder
Weak dollar reprises its role as ‘carry' trade funder
MUMBAI: The U.S. dollar's weakness since the start of Donald Trump's presidency has made it the preferred funding currency for popular 'carry' trades, fuelling heavy flows into higher-yielding emerging market currencies. Dollar-funded carry trades in the Indonesian rupiah , Indian rupee , Brazilian real , Turkish lira among other currencies, are back in vogue, fund managers said. In a typical currency carry trade, investors use cheap-to-borrow currencies to fund investments in those with better yields. Returns are boosted if the borrowed currency weakens. The dollar, traditionally less favoured than the Japanese yen or Swiss franc for such trades, has become the funding currency of choice as Trump's trade war stokes recession worries and an investor retreat from U.S. Treasuries. Carl Vermassen, a portfolio manager at Zurich-based asset manager Vontobel, has added to carry trades on the rupee and rupiah. 'Emerging market local currency was basically shunned for the simple reason: to avoid local currency risk at a time of an almighty dollar,' he said. 'But, given most investors deem U.S. exceptionalism to have ended, things are changing.' Claudia Calich, head of emerging market debt at M&G Investments, also expects dollar weakness to persist and support carry trades. The London-headquartered fund oversees more than 312 billion pounds ($423.5 billion) and favours the rupee and Philippine peso for carry positions within Asia and the Brazilian real and Mexican peso in Latin America. Intra-day update: rupee strengthens against US dollar The more investors rush back into dollar carry trades, the deeper the dollar's losses are likely to be, analysts said. The dollar index has fallen 8.5% so far this year, dropping below the critical 100 mark in mid-April for the first time in nearly two years. It was last seen at 99.30. That means investors are finding good carry not just in the likes of the rupee and rupiah, whose yields are above those in the United States, but even those with low interest rates such as the South Korean won . The won has led gains in Asian currencies this year with a 6.7% rally against the dollar. The yield advantage over dollars, or the 'carry', measured by the three-month tenure is 2% on the Indian rupee and 1.2% for Indonesia's rupiah. Brazil's real gives a much higher carry at 9% but is far more volatile, meaning the trade could go horribly wrong if the currency depreciates, instead of appreciating. The future expected 3-month volatility, also called implied volatility, for the real is 8.1% compared with 4.7% for the rupee. Goldman Sachs said carry trades were 'a big theme' in recent meetings with its New York clients, with interest growing in Latin American and European markets. 'If volatility settles some more, we will start to hear more about dollar-funded carry trades,' ING Bank said. 'This could be a story for this summer.' Huge inflows Since 'FX carry trades' typically involve investments in bond or money markets in these destinations, analysts expect to see heavy flows into emerging markets. Data for April shows investors bought bonds worth $8.92 billion, the highest for any month since last August, in South Korea, India, Indonesia, Thailand and Malaysia. While some of those flows could have been straight real-money investments into these markets, analysts say carry trades also boomed. In South Korea, foreign investors bought $7.91 billion in bonds, the most since May 2023. Tom Nakamura, vice-president and head of fixed income & currencies at Canadian fund AGF Investments, finds carry trades in Turkey attractive since the central bank's adoption of more orthodox monetary policy. Turkey's benchmark rates are at 46%.
Mint
an hour ago
- Business
- Mint
Weak dollar reprises its role as carry trade funder
Trump's presidency boosts dollar-funded carry trades Goldman Sachs sees carry trades as a major theme Rupee, rupiah and real among top picks for their carry MUMBAI, June 2 (Reuters) - The U.S. dollar's weakness since the start of Donald Trump's presidency has made it the preferred funding currency for popular "carry" trades, fuelling heavy flows into higher-yielding emerging market currencies. Dollar-funded carry trades in the Indonesian rupiah, Indian rupee, Brazilian real, Turkish lira among other currencies, are back in vogue, fund managers said. In a typical currency carry trade, investors use cheap-to-borrow currencies to fund investments in those with better yields. Returns are boosted if the borrowed currency weakens. The dollar, traditionally less favoured than the Japanese yen or Swiss franc for such trades, has become the funding currency of choice as Trump's trade war stokes recession worries and an investor retreat from U.S. Treasuries. Carl Vermassen, a portfolio manager at Zurich-based asset manager Vontobel, has added to carry trades on the rupee and rupiah. "Emerging market local currency was basically shunned for the simple reason: to avoid local currency risk at a time of an almighty dollar," he said. "But, given most investors deem U.S. exceptionalism to have ended, things are changing." Claudia Calich, head of emerging market debt at M&G Investments, also expects dollar weakness to persist and support carry trades. The London-headquartered fund oversees more than 312 billion pounds ($423.5 billion) and favours the rupee and Philippine peso for carry positions within Asia and the Brazilian real and Mexican peso in Latin America. The more investors rush back into dollar carry trades, the deeper the dollar's losses are likely to be, analysts said. The dollar index has fallen 8.5% so far this year, dropping below the critical 100 mark in mid-April for the first time in nearly two years. It was last seen at 99.30. That means investors are finding good carry not just in the likes of the rupee and rupiah, whose yields are above those in the United States, but even those with low interest rates such as the South Korean won. The won has led gains in Asian currencies this year with a 6.7% rally against the dollar. The yield advantage over dollars, or the "carry", measured by the three-month tenure is 2% on the Indian rupee and 1.2% for Indonesia's rupiah. Brazil's real gives a much higher carry at 9% but is far more volatile, meaning the trade could go horribly wrong if the currency depreciates, instead of appreciating. The future expected 3-month volatility, also called implied volatility, for the real is 8.1% compared with 4.7% for the rupee. Goldman Sachs said carry trades were "a big theme" in recent meetings with its New York clients, with interest growing in Latin American and European markets. "If volatility settles some more, we will start to hear more about dollar-funded carry trades," ING Bank said. "This could be a story for this summer." Since "FX carry trades" typically involve investments in bond or money markets in these destinations, analysts expect to see heavy flows into emerging markets. Data for April shows investors bought bonds worth $8.92 billion, the highest for any month since last August, in South Korea, India, Indonesia, Thailand and Malaysia. While some of those flows could have been straight real-money investments into these markets, analysts say carry trades also boomed. In South Korea, foreign investors bought $7.91 billion in bonds, the most since May 2023. Tom Nakamura, vice-president and head of fixed income & currencies at Canadian fund AGF Investments, finds carry trades in Turkey attractive since the central bank's adoption of more orthodox monetary policy. Turkey's benchmark rates are at 46%. (Reporting by Nimesh Vora; Additional reporting by Jaspreet Singh Kalra in Mumbai and Johann Cherian in Bengaluru; Editing by Vidya Ranganathan and Jacqueline Wong)
Mint
a day ago
- Business
- Mint
‘It Is Going to Happen': JPMorgan CEO Jamie Dimon Warns of Crack in Bond Market
JPMorgan Chase CEO Jamie Dimon warned of a crack in the bond market and said the U.S. should be stockpiling military equipment instead of Bitcoin at an economic forum on Friday. Dimon, who was interviewed on stage at the Reagan National Economic Forum in Simi Valley, Calif., prompted some market jitters during Friday's sideways trading session. Asked if he thought so-called 'bond vigilantes" that sell U.S. Treasuries due to worries about growing deficits have returned, Dimon replied 'Yeah." The bank executive pointed to trillions of dollars in borrowing and spending in the wake of the Covid-19 pandemic, which he described as 'huge sums of money, and we don't really know the full effect of that." 'You are going to see a crack in the bond market," Dimon said. 'It is going to happen. And I tell this to my regulators, some of you who are in this room, I'm telling you it's going to happen, and you're going to panic." 'I'm not gonna panic," he added. 'We'll be fine. We'll probably make more money, and then some of my friends will tell me 'We like crises because it's good for JPMorgan Chase.' Not really." Government debt has been in focus after the U.S. lost its last perfect Aaa rating earlier this month when Moody's downgraded U.S. sovereign debt to AA+. The yield on the 30-year Treasury note jumped 0.25 percentage point in May, its largest one-month gain since December, according to Dow Jones Market Data. It set a 52-week high north of 5% on May 21. Dimon also warned of the 'enemy within" in the U.S., calling for a unified front and fixes to things like permitting, regulations, immigration, taxation, schools, and healthcare, among other issues. But he argued the most important issue was maintaining military alliances and the strongest military in the world. 'If we are not the preeminent military and the preeminent economy in 40 years, we will not be the reserve currency," Dimon said. 'That's a fact. Just read history." He said the U.S. has to 'get our act together, and we have to do it very quickly." He also weighed in on the Trump administration's Bitcoin efforts to amass large quantities of the cryptocurrency and the U.S. dollar's current status as the world's reserve currency. 'We shouldn't be stockpiling Bitcoin," Dimon said. 'We should be stockpiling guns, bullets, tanks, planes, drones, you know, rare earths." Write to Connor Smith at
Politico
2 days ago
- Business
- Politico
Trump administration prepares to ease big bank rules
The Trump administration is gearing up to deliver a major win to Wall Street banks: Easing rules imposed on megabanks in response to the 2008 financial crisis. Trump-appointed regulators are nearing completion of a proposal that would relax rules on how much of a capital cushion the nation's largest banks must have to absorb potential losses and remain solvent during periods of economic stress. The plan — being developed jointly by the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation — could be released in the coming months, according to two people familiar with the discussions who were granted anonymity to discuss plans that aren't yet public. Treasury Secretary Scott Bessent, who is coordinating the administration's financial regulatory agenda, said earlier this month that reducing capital requirements is a 'top priority' for federal banking agencies. And he said he's expecting action on the issue 'over the summer.' 'The 2024 election ushered in the largest turnover among federal financial regulators in the history of our country, and that's starting to bear fruit,' said Ed Mills, a Washington policy analyst at Raymond James. Big banks, he said, are 'back in the driver's seat.' The forthcoming proposal would represent the latest policy win for the banking industry, which has been closely scrutinized and regulated since the 2008 global financial meltdown. The move would be the first major banking regulation that Trump-appointed regulators take up as they advance policies they say will lead to greater economic growth. It would also signal a major shift from last year when Biden-era regulators were pushing a plan, detested by the industry, to go in the opposite direction by proposing that large banks increase the size of their capital cushions. The capital rule under consideration would alter what is known as the supplementary leverage ratio — an additional safeguard that requires banks to maintain a minimum level of capital based on the total size of their assets. Bank industry groups and Republican lawmakers have argued that the requirement has constrained bank activity, particularly by discouraging the buying and selling of government debt in the form of U.S. Treasuries. The complex rule was designed as a backstop to make sure banks are equipped to absorb unexpected losses on any asset, not just ones that regulators deem riskier. The policy requires banks to hold the same amount of capital against risky loans and safe assets like U.S. Treasuries. Bessent and Republican proponents say it will be a boon for the Treasury market because it will allow banks to better facilitate the buying and selling of government debt. Treasury markets have swooned in recent months amid Trump's trade war and concerns about spending and tax policies. 'We are pushing to have this supplementary leverage ratio either reduced or removed, and it will allow banks to buy more Treasuries,' Bessent said in a radio interview with Roger Stone last week, adding that it will help deliver on his goal of lowering interest rates. He said easing the rule could reduce Treasury yields by 0.3 to 0.6 percentage points 'over time.' Travis Hill, the acting chair of the Federal Deposit Insurance Corporation, said this past week he expected a joint proposal with other regulators 'in the relatively near future.' The goal, he said, was to 'right size' the requirement so that it less frequently was the binding constraint on some of the largest banks. A similar effort to loosen the supplementary leverage ratio in 2018 during the first Trump administration never came to fruition amid disagreements among regulators. And during the Biden administration banks were successful at fending off a proposal by regulators that called for significantly increasing capital requirements. In 2020, regulators temporarily adjusted the leverage ratio during the Covid-19 pandemic, excluding Treasuries and central bank reserves from the calculation. The goal was to allow banks to more easily buy up government debt. That relief expired in March 2021, though Fed officials said at the time they were open to longer-term changes. Fed Chair Jerome Powell has in recent months expressed support for revisiting the rule. Regulators are now debating, according to the people familiar with the discussions, whether to lower the capital requirement for megabanks by readjusting the formula or reinstating a permanent version of the pandemic-era relief that excludes Treasuries and other safe assets from the calculation. The Fed, OCC and FDIC declined to comment on the proposal. Wall Street critics and progressives are pushing back on the plan as a giveaway to big banks at the expense of dialing up the risks to the financial system. Phillip Basil, director of economic growth and financial stability at Better Markets, said that weakening the minimum level of capital requirements on big banks will increase financial stability risks. He said the bank industry was using recent turmoil in the Treasury markets as a 'pretense' to win an easing of a regulation that they've long lobbied against. 'We can't, on one hand, say that we need to do something about turmoil in the Treasury markets, and on the other hand, say that there's no risk in Treasuries,' he said. 'It's an absurd argument to make.' It's not yet clear precisely how much capital levels for the big banks will fall under either scenario that regulators are considering. And it's also not clear the extent to which regulatory relief for big banks will translate into the Treasury market moves that the Trump administration wants to see. The changes will 'slightly boost the demand for Treasuries' but likely won't be on the magnitude that the administration is hoping, said Gennadiy Goldberg, head of U.S. rates strategy for TD Securities. Easing the capital rule, he said, 'will help at the margin, but I don't think it will be enough on its own to push back against the narrative that U.S. deficits are going up too quickly, and push back against worries that foreign investors are no longer the buyers that they once were.'
Yahoo
3 days ago
- Business
- Yahoo
Trading Day: Markets 'tarrified' anew
By Jamie McGeever ORLANDO, Florida (Reuters) - - TRADING DAY Making sense of the forces driving global markets By Jamie McGeever, Markets Columnist Bonds bounce back Global trade uncertainty cranked up several notches this week amid a flurry of court rulings around U.S. tariffs and President Donald Trump accusing China of violating a deal with Washington, ensuring world markets ended the month on a cautious footing. A clutch of economic indicators on Friday that suggested U.S. growth may be slowing more than expected also added to the gloom, making for a turbulent session on Wall Street. Month-end rebalancing flows were expected to be bullish for bonds, and that's how it appears to have turned out. After four consecutive weeks of declines, Treasuries' prices rebounded this week, particularly at the longer end, thereby bull-flattening the yield curve. The benchmark 10-year Treasury yield on Friday ended at a three-week closing low around 4.40%, partly capped by figures that showed U.S. PCE inflation last month cooled to 2.1% - to all intents and purposes back at the Fed's target. It's worth noting, however, that despite the renewed tariff chaos the S&P 500 and Nasdaq this week climbed to within a few percentage points of February's record highs. It won't take that much of a push to test them, although an impetus will be needed. What might provide that spark? The latest twists and turns on the Trump administration's tariffs, whether that's from the courts or the president's social media posts, appear to be the most likely trigger of major market moves. The U.S. Senate will start debating Trump's tax-and-spending bill - a "big, beautiful bill" as he has dubbed it - that, in its current form, is set to add nearly $4 trillion to the federal debt over the next decade. One element of the bill has unnerved investors in the last 24 hours, a tax targeting foreign investors that could potentially weigh on demand for U.S. Treasuries and the dollar. Deutsche Bank's George Saravelos warned that it could "turn the trade war into a capital war." The U.S. bond market is nervy, despite this week's rebound. The broad thrust from Fed officials' comments this week is policymakers remain in a 'wait and see' mode regarding the economic impact of the tariff uncertainty. Traders don't expect the Fed to cut rates again until September. Meanwhile, another expected interest rate cut from the European Central Bank on Thursday and May's U.S. employment report on Friday are among the highlights on next week's global calendar. I'd love to hear from you, so please reach out to me with comments at . You can also follow me at @ReutersJamie and @ This Week's Key Market Moves * U.S. Treasuries snap a four-week losing streak, with thelong end outperforming. But May is a bad month for bonds - theICE BofA Treasury index has its biggest fall this year. * Long-dated Japanese bond yields pull back from last week'srecord highs - the 40-year yield tumbles nearly 45 bps, itsbiggest ever weekly fall. * Many key equity indices have their best month sinceNovember 2023, including the MSCI World (up 5.5%) and Nasdaq (up9.5%). * Japan's Nikkei rises more than 5% in May for its bestmonth since February last year. * The MSCI Asia ex-Japan index snaps a six-week winningstreak, closing the week down 0.9%. * Nvidia shares soar 24% in May, their biggest monthly risein a year. May has been a good month for Nvidia shares of late,boosted by Q1 earnings - up 26% last year, and 36% in 2023. * The euro rises 0.4% in May, a negligible move in itselfbut enough to seal a fifth straight monthly gain, its longestmonthly winning streak since 2017. * Bitcoin falls 3% this week, retreating from the recordhigh of $112,000 to clock its first weekly decline in seven. Chart of the Week I'm feeling generous, so two charts for you this week. The first is from Simon French at Panmure Liberum. It shows that the gap between the UK 10-year bond yield and the aggregate yield of its G7 peers that exploded around the 'Trussonomics' debacle in late 2022 has not narrowed. More than two and a half years later, it is wider than ever. Investors are clearly demanding a massive premium for lending to the UK government over other G7 nations, but why? Possible explanations include: UK inflation is seen 'higher for longer', greater risk of fiscal slippage, policy credibility worries. The second chart might be gaining some attention - and raising hackles - in the White House. It shows the broadest measure of China's yuan exchange rate which, after a lengthy period of stability, has slumped to its weakest level since 2012. But unlike previous bouts of yuan weakness like the mid-2000s, this is not being driven by FX market intervention from Beijing, says OMFIF's Mark Sobel. In other words, less currency 'manipulation' and more capital outflows due to the huge challenges China's economy is facing. Either way, it will play into the narrative from Washington that global trade and currency imbalances must be fixed. But trade talks between the U.S. and China appear to have stalled, putting investors back on the defensive. Here are some of the best things I read this week: 1. Market Discipline Will Prevail in the U.S. - NourielRoubini 2. Making Sense of the New Global Economy - Dambisa Moyo 3. Failure to communicate is an economic policy risk 4. Today's global imbalances aren't what they used to be -Mark Sobel 5. Lagarde's euro 'battle cry' emphasizes EU cash need:Mike Dolan What could move markets on Monday? * Japan, UK, Germany, U.S. manufacturing PMIs (May) * U.S. manufacturing ISM (May) * Several Fed policymakers scheduled to speak at variousevents: Chair Jerome Powell, Governor Christopher Waller, DallasFed President Lorie Logan, and Chicago Fed President AustanGoolsbee Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Trading Day is also sent by email every weekday morning. Think your friend or colleague should know about us? Forward this newsletter to them. They can also sign up here. (Writing by Jamie McGeever; Editing by Nia Williams) 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
