7 Sep 2015
Global markets mixed, yields likely to go higher – Deutsche Bank
FXStreet (Delhi) – Research Team at Deutsche Bank, notes that with the U.S. markets closed closed for a bank holiday today and yet more soothing words from the PBOC, markets are mixed but attempting a rebound.
Key Quotes
“George Saravelos has already outlined the risks of quantitative tightening as EM central banks sell Treasuries in order to smooth the decline in their local currency. This would suggest that yields are to go higher, unless demand picks up from pension funds and insurance companies searching for real yields, or the deflationary implications that a reserve unwind entails drives a renewed bid for Treasuries as a safe haven.”
“A further risk is highlighted by our rates strategy team who think that the market will struggle to price "done" after "one". "More likely in our view, is that one in September will lead to a December pricing and additional hikes in 2016."
“After the lacklustre ISM, in-line to soft payrolls and stubbornly low inflation expectations, the market would have fully priced out a Sep hike if it wasn't for Fed comments to the contrary. Bond volatility still looks far too low given the opportunity for policy error.”
Key Quotes
“George Saravelos has already outlined the risks of quantitative tightening as EM central banks sell Treasuries in order to smooth the decline in their local currency. This would suggest that yields are to go higher, unless demand picks up from pension funds and insurance companies searching for real yields, or the deflationary implications that a reserve unwind entails drives a renewed bid for Treasuries as a safe haven.”
“A further risk is highlighted by our rates strategy team who think that the market will struggle to price "done" after "one". "More likely in our view, is that one in September will lead to a December pricing and additional hikes in 2016."
“After the lacklustre ISM, in-line to soft payrolls and stubbornly low inflation expectations, the market would have fully priced out a Sep hike if it wasn't for Fed comments to the contrary. Bond volatility still looks far too low given the opportunity for policy error.”