Summary for the 25th of April 2019


Germany’s 10 year-bond yield fell and turned negative yet again yesterday after a disappointing released IFO Business Climate Index data. The market was expecting a small increase in the IFO index in April, instead the index decreased even further from previous month. Both the sub index for current economic assessment and for the next six months expectations had decreased.

The falling treasury yield in Germany seems to affect the treasury yield in the US, US 10 year treasury yield is at the moment around 2.532% (it was around 2.80% at the beginning of 2019).

Even though the US stock markets are now back at the all time high since last autumn, the treasury yield hasn’t risen as much. The reason can be that the Fed is taking a break in it’s planned contractionary monetary policy, but it can also be other factors that have been slowing down the treasury yield.

One of the other factors can be what is called term premium. When the investors in the financial markets are risk averse (don’t want to take high risk), they will invest in safer investments which yield less returns, thus giving a low term premium. The rising stock markets these past days indicate that investors are willing to take more risks (less risk aversion), this should also increase the term premium, and the long treasury yield.

The stock market is back at its top since September 2018, the long treasury yield still hasn’t. Thus the risk aversion might not be as low as the stock market is showing,  and more driven by a high level of optimism.

Indices for 25th of April. Not many positive surprises in the economic indicators, this had led to negative close in the US stock markets yesterday. China’s stock markets closed in negative today due to lack of news about monetary policy measures from its central bank.

Dow: -0.22% (24th of April)
S&P 500: -0.22% (24th of April)
Nasdaq: -0.23% (24th of April)
Nikkei: +0.6% (25th  of April)
Chinese indices: -1.0% (25th  of April)
STOXX Europe 600 Index: -0.21% (25th  of April)

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