SNB move pushes global bond yields lower

Friday, January 16, 2015

Yesterday’s surprise move by the SNB to scrap its currency ceiling against the euro saw intense selling pressure in both US and Asian equity markets. Investors were blindsided by the decision and promptly dumped euros in favour of the Swiss franc, causing the safe haven currency to rally by as much as 40%. Major US equity benchmark indices closed lower for the fifth straight session yesterday with both the S&P 500 and DJIA spending the majority of the session in negative territory. Asian investors caught off guard by the move erased much of the previous session’s gains with Japanese stocks trading between 0.9-1.4% lower overnight.

The Japanese yen strengthened for a fifth straight session against the dollar as safe haven demand saw the currency end yesterday’s session at 116.17 after opening around the previous session’s close and moving tentatively higher, towards 118.00. Jittery investors, pulling out of global equity markets saw interest in the yen prevail throughout the latter half of the day as demand from European and US investors saw moves into the yen right up until the close. Activity overnight and early this morning has seen some weakness return as investors consolidate recent gains, with the currency trading back around 116.50 against the dollar having traded towards 116.84 early on.

Government bond yields around the world have dropped towards record lows this week as market volatility, eurozone uncertainty and geopolitical tensions prompt investors to seek out safe haven assets. Having already dropped considerably since the start of the week, yesterday’s surprise move by the Swiss National Bank to abolish the currency ceiling against the euro and cut its main deposit rate further, from -0.25% to -0.75% in a bid to boost capital flows, has seen demand for government backed securities increase substantially over the past twenty four hours. For investors seeking better fixed income returns than the majority of western bonds, the antipodean issues were still managing to provide attractive returns. Ten year Australian bond yields fell 17 basis points to 2.5%, a record low while, New Zealand’s 10 year yield fell to a 18 month low to 3.34%. Yields across European issues were considerably worse with UK 10 year bond yields pulling back to 1.5% while the equivalent issue from Germany saw yields fluctuate around 0.45%, near record lows.

JPY snaps five day rally against the dollar

JPY Curncy Japanese Yen Spot 2015 01 16 07 54 05

Australian 10 year bond yields fall to record low

GACGB10 Index Australia Govt Bo 2015 01 16 07 54 45

UK yields on 10 year gilts drop back towards 1.5%

GUKG10 Index UK Generic Govt 10 2015 01 16 07 55 23

Events for today

1000

EZ

Dec

CPI Core

1330

US

Dec

CPI Core

1415

US

Dec

Capacity Utilisation

1415

US

Dec

Industrial Production

1500

US

Jan

University of Michigan Survey

OE: 

Jan  FTSE 100 Index & Equity (LIFFE)  

LT:

Feb Brent Crude (ICE)

All times UK Local Time

 

Topics: Equities, EUR, JPY, CHF, Yields
More from: Kash Kamal