Latest news with #bondmarkets
Zawya
4 days ago
- Business
- Zawya
The World Debt Situation Has Become More Unstable, Octa Broker warns
KUALA LUMPUR, MALAYSIA - Media OutReach Newswire - 30 May 2025 - Traders and investors alike are unnerved by the recent turbulence in the bond markets. After Moody's—a major rating agency—downgraded U.S. government debt on 16 May, and Japanese long-term bond yields soared to multi-decade highs, some market participants started to fear that the world may be on the verge of a major debt crisis. Meanwhile, the yield on 20-year UK government bonds neared 5.5%, a level not seen in 27 years, as investors grew more worried about the extent of Chancellor Rachel Reeves' borrowing plans. Octa Brokers looks at the potential implications of these developments for global markets. Ticking Fiscal Bomb The U.S. mounting national debt has long been the subject of intense debate and concern among economists, policymakers, and the public. Apocalyptic predictions of a U.S. default and dollar collapse are nothing new. They first appeared decades ago and have been surfacing here and there regularly, attracting plenty of followers. However, these predictions have never materialised, while the doomsayers have been dismissed as amateur conspiracy theorists at best and irresponsible alarmists at worst. Still, while we are not inclined to take a grand stance on this issue, we cannot afford to ignore the latest market developments regarding the U.S. debt. Often called a 'ticking fiscal bomb', it has recently started raising fears about the nation's long-term economic stability and potential impact on global markets. 'On current trends, U.S. national debt is projected to reach $37 trillion in two weeks and may reach $40 trillion by the end of the year. This trend cannot continue forever. The Fed's [Federal Reserve] printing press may have no limit, but market patience does have its limit', says Kar Yong Ang, a financial market analyst at Octa broker. Indeed, the market's perception of risk regarding U.S. government debt has clearly risen. This is evident in the noticeable increase in the cost of insuring exposure to U.S. government debt over the past month. The spreads on U.S. credit default swaps (CDS)—a key measure of default risk—have reached their widest levels since the 2023 debt ceiling crisis in recent weeks (see chart below). Market stress intensified even more following Moody's downgrade and the passage of the U.S. President Donald Trump's 'One Big Beautiful Bill Act' in the House of Representatives. The bill features $3.8 trillion in tax cuts and is widely expected to worsen the federal budget deficit outlook. As a result, investors started to demand higher returns for holding long-term U.S. government bonds, pushing the yields on 20-year notes above the important 5% level on 21 May. 5-Year Credit Default Swaps Kar Yong Ang comments: 'Policy uncertainty is all over the place. Tariffs, tax bill, debt ceiling. No wonder investors charge a premium for holding the debt of a country, which is not in a 'triple-A club' anymore. Investors want higher yield in order to provide long-term lending in the current uncertain climate'. Indeed, the U.S. government actually hit its legal borrowing limit back in January and has been using special procedures to avoid exceeding it and potentially defaulting. However, these measures are expected to run out around late August or early September, at which point the government might be unable to meet all its financial commitments. Yields of government bonds with the longest maturities have been rising sharply not just in the United States but also in Japan and the United Kingdom (UK) (see chart below). On 20 May, Japan's 20-year government bond (JGB) auction had its worst results since 2012. The demand was weak, with the bid-to-cover ratio dropping to 2.50, while the lowest accepted price was just ¥98.15, some 2% below the expected price. Yields on 20-Year Government Bonds 'Japan's auction signals poor liquidity and weak interest in new long-term securities as investors are concerned about excessive profligacy. It seems to me that the BoJ wants to stop buying bonds at the worst possible moment. Who is going to replace it?', rhetorically asks Kar Yong Ang, referring to BoJ plans to taper its massive bond purchase programme. Indeed, although yields on long-term JGBs have been rising since the COVID pandemic, the trend accelerated after the Bank of Japan (BoJ) moved toward monetary policy normalisation amid rising wage growth and inflation. Policy normalisation implied higher short-term rates and fewer bond purchases. Thus far, BoJ has ended its yield curve control (YCC), raised its benchmark interest rate from -0.1% to 0.5% and even embarked on quantitative tightening (QT). These factors contributed to the consistent increase in Japanese government bond yields. Today, however, the situation is complicated by additional fiscal stimulus, which could result in more government borrowing just as the BoJ prepares to slowly exit the debt markets. The Cabinet already approved a massive ¥21.9 trillion ($142 billion) economic stimulus package back in November 2024. Most recently, it approved an emergency plan to allocate ¥388 billion ($2.7 billion) from reserve funds to assist businesses and households affected by U.S. tariffs. 'Investors are sending a very clear message: if we are the only ones left to finance these spending plans, then we demand higher returns', concludes Kar Yong Ang. The recent movements in the U.S., Japanese, and UK government bond markets paint a concerning picture of increasing investor unease regarding sovereign debt. From the rising cost of insuring U.S. debt and the poor reception of Japan's long-term bond auction to the near 27-year high in the UK gilt yields, a common thread of heightened risk perception is evident. As Kar Yong Ang of Octa Broker points out, factors like policy uncertainty, fiscal profligacy, and the prospect of central banks reducing their bond purchases are prompting investors to demand greater compensation for lending to governments. 'The problem is not just that governments have an enormous mountain of debt. The real problem is that the market is intricately interconnected. A small trouble in one place can morph into a major crisis elsewhere. What if higher JGB yields lure Japanese capital back home? If they decide to increase their JGB holdings, they may have to sell the U.S. Treasuries and that could be catastrophic given that Japan is a major holder of U.S. debt', says Kar Yong Ang. Investors should watch the upcoming BoJ meeting scheduled for 17 June. The BoJ will issue its regular policy rate decision and will likely announce its balance sheet reduction plan. According to MacroMicro, markets currently expect a gradual pace—around 6–7% reduction over two years. However, if the BoJ opts to speed up the process, it could put pressure on global markets ___ Disclaimer: This content is for general informational purposes only and does not constitute investment advice, a recommendation, or an offer to engage in any investment activity. It does not take into account your investment objectives, financial situation, or individual needs. Any action you take based on this content is at your sole discretion and risk. Octa and its affiliates accept no liability for any losses or consequences resulting from reliance on this material. Trading involves risks and may not be suitable for all investors. Use your expertise wisely and evaluate all associated risks before making an investment decision. Past performance is not a reliable indicator of future results. Availability of products and services may vary by jurisdiction. Please ensure compliance with your local laws before accessing them. Hashtag: #Octa The issuer is solely responsible for the content of this announcement. Octa Octa is an international CFD broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services used by clients from 180 countries who have opened more than 52 million trading accounts. To help its clients reach their investment goals, Octa offers free educational webinars, articles, and analytical tools. The company is involved in a comprehensive network of charitable and humanitarian initiatives, including improving educational infrastructure and funding short-notice relief projects to support local communities. In Southeast Asia, Octa received the 'Best Trading Platform Malaysia 2024' and the 'Most Reliable Broker Asia 2023' awards from Brands and Business Magazine and International Global Forex Awards, respectively. Octa
Malay Mail
4 days ago
- Business
- Malay Mail
The World Debt Situation Has Become More Unstable, Octa Broker warns
5-Year Credit Default Swaps Source: LSEG Yields on 20-Year Government Bonds Source: LSEG KUALA LUMPUR, MALAYSIA - Media OutReach Newswire - 30 May 2025 - Traders and investors alike are unnerved by the recent turbulence in the bond markets. After Moody's—a major rating agency—downgraded U.S. government debt on 16 May, and Japanese long-term bond yields soared to multi-decade highs, some market participants started to fear that the world may be on the verge of a major debt crisis. Meanwhile, the yield on 20-year UK government bonds neared 5.5%, a level not seen in 27 years, as investors grew more worried about the extent of Chancellor Rachel Reeves' borrowing plans. Octa Brokers looks at the potential implications of these developments for global U.S. mounting national debt has long been the subject of intense debate and concern among economists, policymakers, and the public. Apocalyptic predictions of a U.S. default and dollar collapse are nothing new. They first appeared decades ago and have been surfacing here and there regularly, attracting plenty of followers. However, these predictions have never materialised, while the doomsayers have been dismissed as amateur conspiracy theorists at best and irresponsible alarmists at worst. Still, while we are not inclined to take a grand stance on this issue, we cannot afford to ignore the latest market developments regarding the U.S. debt. Often called a 'ticking fiscal bomb', it has recently started raising fears about the nation's long-term economic stability and potential impact on global markets., says Kar Yong Ang, a financial market analyst at Octa the market's perception of risk regarding U.S. government debt has clearly risen. This is evident in the noticeable increase in the cost of insuring exposure to U.S. government debt over the past month. The spreads on U.S. credit default swaps (CDS)—a key measure of default risk—have reached their widest levels since the 2023 debt ceiling crisis in recent weeks (see chart below).Market stress intensified even more following Moody's downgrade and the passage of the U.S. President Donald Trump's 'One Big Beautiful Bill Act' in the House of Representatives. The bill features $3.8 trillion in tax cuts and is widely expected to worsen the federal budget deficit outlook. As a result, investors started to demand higher returns for holding long-term U.S. government bonds, pushing the yields on 20-year notes above the important 5% level on 21 Yong Ang comments:Indeed, the U.S. government actually hit its legal borrowing limit back in January and has been using special procedures to avoid exceeding it and potentially defaulting. However, these measures are expected to run out around late August or early September, at which point the government might be unable to meet all its financial of government bonds with the longest maturities have been rising sharply not just in the United States but also in Japan and the United Kingdom (UK) (see chart below). On 20 May, Japan's 20-year government bond (JGB) auction had its worst results since 2012. The demand was weak, with the bid-to-cover ratio dropping to 2.50, while the lowest accepted price was just ¥98.15, some 2% below the expected asks Kar Yong Ang, referring to BoJ plans to taper its massive bond purchase although yields on long-term JGBs have been rising since the COVID pandemic, the trend accelerated after the Bank of Japan (BoJ) moved toward monetary policy normalisation amid rising wage growth and inflation. Policy normalisation implied higher short-term rates and fewer bond purchases. Thus far, BoJ has ended its yield curve control (YCC), raised its benchmark interest rate from -0.1% to 0.5% and even embarked on quantitative tightening (QT). These factors contributed to the consistent increase in Japanese government bond yields. Today, however, the situation is complicated by additional fiscal stimulus, which could result in more government borrowing just as the BoJ prepares to slowly exit the debt markets. The Cabinet already approved a massive ¥21.9 trillion ($142 billion) economic stimulus package back in November 2024. Most recently, it approved an emergency plan to allocate ¥388 billion ($2.7 billion) from reserve funds to assist businesses and households affected by U.S. Kar Yong recent movements in the U.S., Japanese, and UK government bond markets paint a concerning picture of increasing investor unease regarding sovereign debt. From the rising cost of insuring U.S. debt and the poor reception of Japan's long-term bond auction to the near 27-year high in the UK gilt yields, a common thread of heightened risk perception is evident. As Kar Yong Ang of Octa Broker points out, factors like policy uncertainty, fiscal profligacy, and the prospect of central banks reducing their bond purchases are prompting investors to demand greater compensation for lending to Kar Yong should watch the upcoming BoJ meeting scheduled for 17 June. The BoJ will issue its regular policy rate decision and will likely announce its balance sheet reduction plan. According to MacroMicro, markets currently expect a gradual pace—around 6–7% reduction over two years. However, if the BoJ opts to speed up the process, it could put pressure on global markets___Hashtag: #Octa The issuer is solely responsible for the content of this announcement. Octa Octa is an international CFD broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services used by clients from 180 countries who have opened more than 52 million trading accounts. To help its clients reach their investment goals, Octa offers free educational webinars, articles, and analytical tools. The company is involved in a comprehensive network of charitable and humanitarian initiatives, including improving educational infrastructure and funding short-notice relief projects to support local communities. In Southeast Asia, Octa received the 'Best Trading Platform Malaysia 2024' and the 'Most Reliable Broker Asia 2023' awards from Brands and Business Magazine and International Global Forex Awards, respectively.
Arab News
5 days ago
- Business
- Arab News
Saudi Aramco to tap bond market amid low gearing at around 5%, CEO says
RIYADH: Saudi Aramco will continue tapping bond markets in the future despite maintaining one of the lowest gearing ratios in the energy industry, according to a top official. In an interview with Bloomberg, Aramco President and CEO Amin Nasser said the oil giant's gearing ratio, a financial metric that compares a company's debt to its equity, is currently around 5 percent. That's significantly lower than the industry average, where many peers operate with levels between 15 and 20 percent. 'Our gearing today is around 5 percent — still one of the lowest gearing, you know. It's almost half of the average compared to other energy industry players in the market, and we will continue to tap into that additional bond markets in the future,' Nasser said. He continued: 'But we have a low gearing ratio, which still, as you consider it, is very low compared to any players in the markets.' The low gearing ratio, which reflects strong financial discipline and limited reliance on debt, is part of what enables Aramco to maintain stability amid market fluctuations. Gearing is commonly used by analysts and investors to assess a company's financial leverage, with lower ratios often indicating a stronger balance sheet and reduced financial risk. In the interview, Nasser also reaffirmed the company's commitment to maintaining high dividends. 'We have a strong balance sheet, and our dividend is one of the highest, the highest globally. We're expecting to pay dividends that go to the majority shareholder and other shareholders, which is the government, of $85.4 billion this year.' He said the company benefits from having spare capacity, which allows it to bring more barrels to the market. 'For every million barrels, that will have a huge impact on our net income. I would say it will give you a $10 cushion for every million barrels that you put into the market.' Nasser added: 'We have today close to 3 million barrels of spare capacity, so other companies do not have that to cushion any drop in prices. For us, we do have that spare capacity that is healthy, strong, and when you put it, it allows you to increase significantly your net income.' He emphasized the company's ability to withstand lower oil prices due to its operational efficiency and robust infrastructure. 'We are the lowest cost producer. Our extraction cost is $3, and it still is $3. And with low extraction cost, healthy balance sheet, and our investment that is continuing to be capturing opportunities that we have,' Nasser said.
Reuters
7 days ago
- Business
- Reuters
Morning Bid: Nvidia earnings take the spotlight
A look at the day ahead in European and global markets from Rae Wee Earnings results from Nvidia (NVDA.O), opens new tab will be the marquee event for markets on Wednesday, with all eyes on how much U.S. technology curbs on China will cost the AI bellwether. Company watchers expect the chip giant to report a 66.2% surge in first-quarter revenue to $43.28 billion, however uncertainty surrounding its China business looms large even as a pullback in other regulations is set to open up new markets. As it is, traders in the options markets are bracing for industry-wide volatility after the results, with defensive options contracts on a major semiconductor ETF drawing heavy attention. Earnings aside, investors will also be watching developments in global bond markets after demand on Wednesday for Japan's 40-year government bond auction was its lowest since November, underscoring the market's diminishing capacity to absorb new debt. Long-end yields have surged worldwide in recent weeks on a heavy selloff in bonds as concern mounts over fiscal deficits, particularly in developed nations such as the U.S. and Japan. Worries over tax cuts and that the United States' chaotic tariff policy will stoke inflation and propel government spending have made investors increasingly nervous about holding long-dated sovereign debt. On Tuesday, Reuters' exclusive report that Japan is considering trimming the issuance of super-long bonds was followed by a drop in both yields and the yen. Yields on Japanese government bonds were little changed following Wednesday's auction. U.S. Treasury yields edged up slightly after falling the previous day. Over in New Zealand, the central bank cut its benchmark interest rate by 25 basis points and flagged a slightly deeper easing cycle than it forecast three months ago, underlining risk to economic growth from a sharp shift in U.S. trade policy. Key developments that could influence markets on Wednesday: Trying to keep up with the latest tariff news? Our new daily news digest offers a rundown of the top market-moving headlines impacting global trade. Sign up for Tariff Watch here.
Bloomberg
23-05-2025
- Business
- Bloomberg
Bond Investors Can Build in More Term Premium: Newton
Newton Investment Management Fixed Income Head Ella Hoxha discusses the outlook for bond markets as rising yields, particularly on longer-dated instruments, add to investor concerns about ballooning US debt and deficits. She speaks on Bloomberg Television. (Source: Bloomberg)
