Summary for the 28th of August -Declining treasury yields


Recent auctions of the 2 years US treasury notes have been keeping the 2 year treasury yield from declining. Similar to how a strong demand increases the bond price and decreases the bond yield, a strong supply would decrease the bond price and increase the bond yield. Due to this, the 2 year treasury yield has risen more than the 10 year treasury yield. This makes the yield curve to invert. Inverted yield curve has been a reliable indicator for economic recessions.

Italy’s 10 years treasury yield has also declined. Bond yield decreases when there is high demand for treasury bonds. Investors in the financial markets tend to seek assets in safe haven countries, such as treasury bonds of Germany, France and the US, when there are uncertainty in the market , thus making the price of treasury bonds to rise and the treasury yield to fall. Lately, bond yield of countries that usually are not considered as safe haven, like Greece, Italy and Portugal have been falling more sharply than for safe haven countries. This might be due to those countries’ bond yields still are at a high level, thus the fall is stronger for these countries.

Still this is quite unusual, because the yield for non safe haven countries doesn’t usually fall during economic uncertainties. In 2015, when the financial markets had anticipated a high probability of Greece to default on their debt, Greece 10 year treasury bond yield was at 18%, in 2012, the yield was at 36%. Today the yield is only 1.8%. This shows that there is high demand for treasury bond due to more and more bond yield have become negative.

Indices for 28th  of August
Dow: -0.5% (27th of August)
S&P 500: -0.3% (27th of August)
Nasdaq: -0.3% (27th  of August)
Nikkei: +0.2%  (28th of August)
Chinese indices: -0.4% (28th  of August)
STOXX Europe 600 Index: -0.20% (28th of August)

This post is sponsored by my video course in Portfolio Analysis, check it out if you are interested:
Quick and Easy Portfolio Analysis Video Course  (Skillshare)
Quick and Easy Portfolio AnalysisVideo Course  (Udemy)
and Facebook page for other information:
Quick&Easy Finance Economics

Comments

Post a Comment

Popular posts from this blog

Summary for the 2nd of October -Weaker manufacturing outlook

Last week’s flash PMI estimates for the EU area and yesterday’ final PMI numbers are indicating that the weakening in the manufacturing sector isn’t country specific, but rather the weakening is across countries. The decline in Germany’s manufacturing sector is less than expected by the financial markets, while the decline in France is higher than expected. The same goes for Spain and Italy. The UK’s PMI index has increased by 0.9 to 48.3 and is more than expected, though 48.3 still indicates a weaker outlook. The US Manufacturing PMI has increased to 51.1 while the ISM index declines by 1.3 percent to 47.8, the lowest value since 2009. Despite weakening activities in the manufacturing sector for the developed countries, for the developing countries the outlook is still positive. The global PMI value in the manufacturing sector has risen from August to September. Past months’ decline has been due to weaker growth in the global trade. The WTO has updated its global trade forecast
Read more

Summary for the 15th of October

China’s balance of trade shows a fall in exports by 3.2 percent, comparing to a year ago and the imports fall by 8.5 percent, the first fall since May this year. China is the largest contributor to world economic growth, through the weaker imports, China’s economic decline is affecting the rest of the world economy, such as the Euro area. The Euro area’s industrial production for  August has risen by a little more than the markets have expected. The industrial production in the Euro area has been weakening since the start of 2018. Finland is currently holding the council of the EU presidency. At a press conference with the European Council President elect, Charles Michel, the Finnish prime minister, Antti Rinne, says that The EU needs more time to reach a Brexit agreement. Boris Johnson is hoping to seal a Brexit deal before the EU summit on Thursday, so that he will be able to present it to the British Parliament on Saturday for approval, in doing so, he won’t need to postpone B
Read more

Summary for the 21st of October Brexit drama

On Saturday, the British parliament is withholding the final decision of the revised Brexit deal and forcing Boris Johnson to ask the European Council for an extension to the 31 st of January. Instead the parliament has greed on Oliver Letwin’ amendment, which states that there wont be a no deal Brexit until the parliament has agreed on the revised Brexit deal this week. And on Saturday night, Boris Johnson has sent an unsigned letter to the European Council asking for a Brexit delay as well as a personal letter to the Council asking the EU leaders not to delay Brexit. The US stock exchange has closed in negative on Friday after Johnson & Johnson has to recall 33 000 bottles of baby powder in the US after health regulators found trace amounts of asbestos in a bottle purchased online. Boeing has admitted that two of its employers in 2016 misled the FAA about the 737 Max and its technical system. Weaker than expected Chinese economic indicators also contributes to the negative
Read more