Global bond yields on the canvas — Turkey’s lira on the ropes

London — Global bond yields continued to spiral lower on Thursday as recession fears fed expectations of more policy easing by major central banks, while Turkey’s lira took a 5% beating as pressure ratcheted up on its volatile markets again.

Europe and Asia’s top share markets did manage to steady, but with the end of what has been a roller-coaster first quarter of the year for traders there was plenty to try and keep track of.

Sterling was hit by a bout of Brexit blues after a round of votes in the UK parliament failed to produce any clarity or new plan to manage its divorce from the EU.

A Reuters report that the US and China had made progress in all areas in trade talks seemed to bolster sentiment a little, though sticking points still remained and there was no definite timetable for a deal. 

Early European moves saw London’s FTSE climb 0.75% and Frankfurt and Paris both add 0.4%, after a 1.6% tumble in Tokyo overnight had been offset by much of the rest of Asia-Pacific nudging higher. 

Credit rating firm S&P Global became the latest to chop its eurozone growth forecasts while E-Mini futures for the S&P 500 seemed uncertain which way New York would go later. Worries that the inversion of the US treasury curve signaled a future recession only deepened as 10-year yields fell to a fresh 15-month low at 2.34%.

“We think that the ongoing flattening, or outright inversion, of the curve is a bad sign for equities, as it usually has been in the past,” said Oliver Jones, markets economist at Capital Economics. “Arguments that the yield curve is no longer a reliable indicator seem to resurface every time it inverts, only to be subsequently proved wrong.”

The latest lunge lower in German bunds yields appeared to have eased at least, having dived deeper into negative territory on Wednesday after European Central Bank (ECB) president Mario Draghi said a hike in interest rates could be further delayed.

Plans to mitigate the side-effects of negative interest rates could also be considered, suggesting the central bank was preparing for an extended period below zero.

That shift came hot on the heels of a dovish surprise on Wednesday from the Reserve Bank of New Zealand, which abandoned its neutral bias to say the next rate move would likely be down. Yields in both New Zealand and neighbour Australia, sank to record lows in response.

Lira freefall

Turkey’s lira, one of the currencies at the heart of last year’s emerging-market meltdown, plunged as much as 5% against the dollar amid worries that the economic and geopolitical risks are on the rise again there.

Authorities were showing the first sign of easing a draconian squeeze put on international lira traders ahead of local elections this weekend, but a day after the country’s stock market also slumped, there was little good will.

Ugras Ulku at the International Institute of Finance in Washington said the question was, when the dust settles, whether portfolio managers want to continue to invest in Turkey or not. “We will have to wait and see,” he said.

Elsewhere, hints of rate cuts from New Zealand’s central bank had the desired effect on its currency, which was pinned at $0.6816 after dropping 1.6% overnight. The Aussie was on the defensive at $0.7090.

Draghi’s comments likewise kept the euro back at $1.1250 , and left the dollar a fraction firmer against a basket of its competitors at 96.874. Only the yen held its own thanks to its safe-haven status and firmed to ¥110.00 to the dollar.

Source: businesslive.co.za