Latest news with #yieldcurve
Reuters
3 days ago
- Business
- Reuters
India's favoured 5-year bond trade loses steam with rate cuts priced in, fund managers say
MUMBAI, June 5 (Reuters) - A widely popular strategy of investing in India's five-year government bonds is losing its appeal as the security has now nearly priced in likely rate cuts, five fund managers said on Thursday. Heavy buying in the 6.75% 2029 bond has knocked down the yield by 80 basis points (bps) since March, among the steepest declines across dated securities and only behind two- and three-year bond yields. The five-year bond is also trading 15 bps below the policy repo rate of 6%, the deepest inversion in 11 years. "The yield is trading sharply below the repo rate due to multiple factors, but this move is now overdone," said Murthy Nagarajan, head of fixed income at Tata Asset Management. The Reserve Bank of India (RBI) is expected to lower rates by at least another 50 bps in the coming months. The five-year segment appears to have priced in most of the anticipated easing, said Laukik Bagwe, fund manager and head of fixed income at ITI Mutual Fund. "While the shorter end of the curve has outperformed, further gains may be limited without clearer signals from the RBI." Still, foreign investors, including Nomura, Standard Chartered Bank and BofA Securities, have suggested investing in the five-year part of the curve, noting that liquidity infusions from the central bank will bode well for shorter-duration bonds. The 2029 bond has remained among the five most traded papers over the last couple of months. Fund managers say that the focus may now shift to 10-year debt. "We expect benchmark 10-year bond yield to grind towards 6% level in the medium term," said Dhawal Dalal, president and CIO - fixed income at Edelweiss Asset Management. Dalal expects the repo rate to settle between 5.25% and 5.50%. Tata Asset Management's Nagarajan also expects the 10-year bond to outperform hereon, with the yield seen moving towards 6.10%. The 10-year yield has fallen by 39 bps since March, widening its spread over the five-year yield to 35 bps - the highest in three years.
Bloomberg
6 days ago
- Business
- Bloomberg
US 20-Year Yields Fall Below Longer Bonds by Most Since 2021
For a fleeting moment Monday morning, 20-year bonds were no longer offering the highest yields on the US Treasuries curve. The tenor briefly traded below the longest-maturities by the most in almost four years, sending 20-year yields less than 1 basis point below the 30-year. By noon in New York, the 20-year was up roughly 5 basis points to about 4.99%, almost on par with yields on the longest-maturities. The earlier shift is a part of the broader steepening of the yield curve in recent months as traders demand higher return to hold long-term debt instead of shorter ones — making the 20-year more attractive than the longest-dated bonds.
Telegraph
24-05-2025
- Business
- Telegraph
Investors have stopped using this reliable yardstick. Don't you be so blind
But why did it break? Under the hood, 2022's failure evolved exactly because the curve normally reflected banking's eagerness to lend. It failed because banks at that time had accumulated a huge stockpiled hangover of super low-cost deposits, letting them profitably keep lending. That stockpile came and never left because of extraordinary cash hoarding from Covid's life and death terror and its aftermath. The banks' deposit base costs remained firmly below 1pc globally while central banks everywhere hiked sovereign rates in an attempt to fight inflation, a never-before-seen combo. With such a large, low-cost deposit base, banks kept lending. Economies grew modestly, and stocks rose in shock. Yield curves spent 2023 and most of 2024 inverted, becoming boring to most. Then, they silently started steepening, flipping to positive virtually unnoticed. That came partly as some central banks cut short-term sovereign rates (like here and Europe, which now, unlike 2022, did further help banks' costs), and partly because long-term rates rose from prior lower levels, which most view with dread (dread being also bullish). Because money flows almost freely across borders, I've long calculated a GDP-weighted global yield curve of all countries. It better reflects reality because economies and stock indexes mostly move in the same direction globally, just some more, some less. In 12 months it flipped from an inverted -.48pc to 90-day rates being 0.44pc below 10-year rates – a quiet shift of almost 1pc and a large figure in these contexts. Even a small positive spread shift is more powerful than you may think, boosting lending and banking profitability. It doesn't rule out recession or bear market, given so many uncertainties now and ahead. But it is a cagey counterforce to today's gloom.
Bloomberg
23-05-2025
- Business
- Bloomberg
Barclays Advises Switch to Nigeria Shorter-Dated Dollar Bonds
Barclays is recommending investors shift away from Nigeria's longer-dated dollar bonds, noting that yields in the mid-section of the curve now look more attractive. Analysts led by Andreas Kolbe remain overweight Nigerian hard-currency bonds, but note the yield curve has lagged the steepening momentum seen in other emerging markets, where short-dated bonds have rallied more than longer maturities. That leaves room for Nigerian shorter-dated securities to play catch-up, Kolbe says, suggesting clients switch out of the bonds maturing 2049 into 2033 paper.
Globe and Mail
21-05-2025
- Business
- Globe and Mail
The global yield curve's silent re-steepening
Markets' biggest moves come from what isn't noticed. That fundamental truth has reigned repeatedly during my 50-plus years of managing money. Variations in widely watched things can wiggle stocks somewhat in the short term. But major moves and longer? Not really. It is the things that investors haven't noticed - and so haven't been priced in - that hold the potential to juice markets. A large, largely unseen bullish force is the global yield curve's silent re-steepening. Yield curves – ignored recently, for reasons I will explain – were long near sacred. They graph a country's government bond rates, short-term versus long-term, spanning three-month yields on the left to 10-year yields (or longer) on the right. When long rates exceed short, the 'curve' slopes upward to the right. Strongly upward-sloping or 'steep' yield curves were classically deemed bullish. Conversely, 'inverted' curves (short rates topping long ones) generally – but imperfectly – predicted recession. Why? The curves predicted banks' profitability and, thus, their eagerness to lend, which in turn fueled economies and stocks. Banks' basic business is borrowing short-term deposits to fund longer-term loans, pocketing the spread. Steep curves meant lower funding costs and higher loan revenue. So, banks lent eagerly, spurring growth. With inverted curves, loan profitability shriveled, credit froze, stocks imploded … and GDP did, too. The curve rarely gave false signals. It was watched hawk-like – primarily the U.S. curve, given America's global financial dominance. Like driving a car, eyeing its instrument panel, many simply assumed America's curve reflected reality – because it long had. They ignored what was happening under the hood: bank lending. It worked until it didn't. In late 2022, after global stocks' minor bear market, yield curves inverted — and started flashing false signals, like a broken tire pressure gauge. That inversion made almost everyone expect recession and continuing dismal stock returns. But Canadian, U.S. and world GDP kept growing overall, while the TSX, S&P 500 and MSCI World indexes rebounded big time. That inversion and global bull market ran side-by-side through 2023 and most of 2024. Initially, pundits head-scratchingly questioned the curve's false warnings. But, eventually, most simply ignored the 'broken' curve. They still do. That gives its recent, silent re-steepening power. Why did it 'break'? Simple: Banks accumulated oceans of super low-cost deposits from COVID policy responses and lockdowns. In 2020, U.S. bank deposits ballooned 20.8 per cent year-over-year and spiked another 11.7 per cent in 2021 – and remained elevated through 2022 and beyond, echoing global trends. Canadian deposits spiked even more – up 37.2 per cent in 2020 and 13.2 per cent in 2022. Hence, banks' deposit costs remained firmly below 1 per cent globally despite central banks everywhere raising rates as they tried to fight the massive inflation that they, themselves, caused by boosting money supply amid lockdowns. The scenario was unprecedented! Lending persisted. So, the yield curve's legendary predictive power faded. All 2023. Most of 2024. Then, ignored, European, Canadian and other countries' curves silently started steepening. Partly, that came as the Bank of Canada, the European Central Bank and the U.S. Fed cut short-term rates – which, unlike 2022, now actually helped banks by pushing their deposit costs even lower – and partly because long-term rates rose (which most investors wrongly dreaded). Given money flows relatively freely globally, I have long calculated a GDP-weighted global yield curve. It just works better in predicting the economy, future bank lending and market direction. Last June, global 10-year sovereign bond yields were minus-0.85 percentage point (ppt) below three-month yields— deeply inverted! Now? That spread flipped positive 0.37 ppt — a shift of more than 1.2 ppt. It doesn't singularly rule out a recession or bear market. But it really helps – and explains recent leadership trends by category and region. The steepening came mostly outside America. Its curve is basically flat now. The global yield curve's steepening remains obscure because most investors fixate excessively on America. Canada's curve shifted from minus-1.26 ppts last June to positive 0.54 ppt — a steepening of 1.8 ppt! Developed Europe shifted from minus-0.76 ppt to 1.02 ppts, another shift of 1.8 ppt. That matters – particularly because it is so unnoticed. Regionally, where it improved most, stocks do better. The MSCI Europe neared new all-time highs this month. The TSX hit new highs throughout mid-May. Globally, non-U.S. stocks outshine America's year-to-date, which wiggle wildly sideways. No coincidence. Steepening yield curves boost lower-growth, cheaper value stocks — which dominate Europe (and Canada, albeit less so) — relative to growth stocks, which dominate America. For example, MSCI Europe's Banks industry group rose 38.8 per cent this year to date, smashing the S&P 500 Tech sector, which is down. Why? In part, because the curve shift boosted banks' profit outlook. Consider MSCI Europe's value-oriented Industrials and Consumer Discretionary sectors — up 21.1 per cent and 4.6 per cent, respectively, year-to-date. They love more lending — needing it to fuel growth and earnings. Global curve steepening alone won't dictate markets' direction. But that few see or celebrate it means its power isn't spent. Its stealthiness provides it more power – and favours European and value stock leadership lasting. Ken Fisher is the founder, executive chair and co-chief investment officer of Fisher Investments.
