From Richard Breslow, Bloomberg commentator and former FX trader and fund manager
Out of Nowhere, Investing Feels Fun Again
This week is sure ending with a lot more to think about than it began. As the world re-opened after the last of the summer holidays there was a sense of malaise. That we were in for just more of the same. Traders were left to dusting off the summer doldrums playbook. No meaningfully new ideas where expected from policy-makers.
But, happily, we end the week with some interesting issues to debate. Markets have quietly moved toward levels which create opportunity, whatever your view.
Global bond yields, by any measure, are rock-bottom low. But the expectation was they would resume their inexorable downward march. Draghi was probably going to do more, U.S. numbers were soft, the search for the greater fool implacable.
But whether it was the ECB waiting, Fed speakers pressing or, more likely, 30-year JGBs “backing up” to 50bps, global bonds decided some caution was in order.
And in the world of extraordinary monetary “largesse,” bonds are the global investing bellwether. Everything else follows their lead.
Lo and behold, we learn that Japanese investors last week were sellers of foreign bonds — in size. Turns out that with swap rates such as they are, U.S. yields just aren’t as attractive as they look at first blush.
To make life more interesting, Jeffrey Gundlach made eager dip buyers double-clutch by warning that it’s time for fixed income investors to prepare for rising interest rates. Describing this as a “big, big moment”
We find ourselves with 30-year JGBs sitting on an important pivot at 45bps, UST 10-year back to 1.6%, the first line of support and German bunds threatening the 55-day moving average. Something for everyone.
Analysis of the ECB ran the gamut from out of weapons to preparing a radical new shift. His comments on G-20 fiscal spending is raising eyebrows. No one setting Japanese policy seems on the same page. Carney is “serene,” which is nice but uninformative. Everything, suddenly, seems a bit up in the air.
And then there’s the biggest pending news item — Governor Brainard’s unscheduled speech on the outlook for the U.S. economy and monetary policy. It’s not unreasonable to expect this could be seminal in the context of you know what. She’s the fourth member of the Fed’s big three and a hawkish tilt could shift futures pricing fast. Of course the same is true the other way
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