Joseph Little, Global Chief Strategist at HSBC Global Asset Management joins Yahoo Finance Live to break down how markets are faring as the U.S. looks to recover financially from the pandemic.
Joseph Little, Global Chief Strategist at HSBC Global Asset Management joins Yahoo Finance Live to break down how markets are faring as the U.S. looks to recover financially from the pandemic.
(Bloomberg) -- After last week’s market turmoil, there’s really just one question on traders’ minds: how central banks will react to the jump in bond yields.The manner in which markets anticipate the likely policy response will be key to determining risk appetite Monday following a week in which 10-year Treasury yields, a benchmark for global borrowing costs, surged to almost triple their levels of August. The move underscored how investors are starting to fret about an acceleration in inflation that might prompt the Federal Reserve and other central banks to tighten policy sooner than expected. The S&P 500 had its first back-to-back weekly decline since October, while implied volatility in Group-of-Seven currencies rose the most since June.“We are moving to a type of market condition that’s not for the faint-hearted,” said Nader Naeimi, the head of dynamic markets at AMP Capital Investors in Sydney, adding that he will continue betting against Treasuries. “The focus right now is the Fed and central banks. If they sound alarmed about the recent back-up in bond yields, then the curves will likely start flattening.”As trading go underway Monday morning, yields on Australia’s 10-year government bonds slumped 19 basis points to 1.73%. Yield’s on the three-year benchmark eased half a basis point to 0.11%, versus the central bank’s target of 0.1%. In New Zealand, 10-year yields slipped 5 basis points.The Reserve Bank of Australia waded in with A$3 billion ($2.3 billion) of unscheduled bond purchases last week in an effort to calm markets. Governor Philip Lowe may signal policy makers’ resolve to restrain borrowing costs at a policy meeting Tuesday. The country’s 10-year note yield climbed around 50 basis points in the week through Friday.For all the recent whiplash in bond markets though, Friday provided some respite amid some month-end buying and attempts by policy makers to soothe markets. European Central Bank Executive Board member Isabel Schnabel said more stimulus could be added if the surge in yields hurts growth, while Fed Chair Jerome Powell called the run-up in yields “a statement of confidence” in the economic outlook.The 10-year Treasury yield ended the week at 1.40%. It had surpassed 1.60% at one point on Thursday.Still, investors will be looking for more reassurance in coming days as Powell delivers what are likely his final public comments before a mid-month policy meeting. A string of other officials are also scheduled to speak.More VolatilityThe volatility in Treasuries is “more than likely” to carry onto this week, said Marc Ostwald, chief economist and global strategist at ADM Investor Services in London. “Markets are still in the mood to challenge the Fed view of running everything hot.”Mansoor Mohi-uddin, chief economist at Bank of Singapore Ltd., expects central bank officials to express more concern about the move in yields in coming days because tighter financial conditions may hurt the U.S. recovery.“We expect the Fed to stop observing that surging yields are benign, for example by signaling it may delay tapering if bond markets remain volatile,” he said. “A shift in tone by the Fed would help stop 10-year Treasury yields rising further towards 2% in the next few months and instead stay at very low levels still to the benefit of risk assets.”(Updates with opening of trading in Australia)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Australia’s central bank signaled it will not shirk from its yield target and quantitative easing programs designed to hold down borrowing costs and keep a lid on the currency. Yet, the bond market shows no indication of taking a backward step.Reserve Bank Governor Philip Lowe and his board are likely to focus Tuesday’s meeting on their response to a global reflation trade that’s proving a major challenge for central banks. Australia shifted to the forefront of the market action as a commodity powerhouse with a rapidly recovering economy; a combination that’s driven its currency up around 80 U.S. cents.The RBA is expected to maintain its broad settings: a key interest rate and three-year bond yield target at 0.10% and a A$100 billion ($78.4 billion) QE program for longer-dated securities. It surprised last month by announcing a second round of QE when the current tranche expires in mid-April. It could tweak its buying plans tomorrow.“Markets will be looking for a firm response to the extreme bond market volatility,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada. “At a minimum, we would expect a step up in yield-curve control for the next couple of weeks, possibly including more purchases on non QE operation days.”The RBA -- following a more than two-month hiatus in defending its yield target -- re-entered the market last Monday with a A$1 billion buy that failed to leave a dent. It followed up Thursday with A$3 billion and when yields still pushed higher, executed a further A$3 billion Friday.Bond markets are pricing in accelerating inflation on expectations of a rapid global economic recovery that will leave central banks unable to maintain loose settings. Policy makers have pushed back, with Jerome Powell signaling the Federal Reserve was nowhere near close to pulling back support for the U.S. economy.But with trillions of dollars sloshing around economies courtesy of central bank infusions plus vast fiscal programs, amid vaccination roll out, rising price pressure may be on the horizon.Australia is facing further pressures as a commodity powerhouse with iron ore, its largest export, surging through $170 a ton last week, approaching records set more than a decade ago during China’s construction frenzy.What Bloomberg Economics Says...“While sizable, the RBA’s purchases are missing the mark when it comes to containing key 3-year yield benchmarks. We think the lift in the 3-year futures yields increases the risk the RBA redirects as much as A$5-6 billion of purchases towards the November 2024 bond over coming weeks.”-- James McIntyre, economistFor the full note, click here.Australia has recovered rapidly from the virus due to its success in limiting Covid-19’s spread to isolated flare-ups. Household and business confidence are strong, boosting activity and hiring, with the jobless rate falling to 6.4% in January from a pandemic peak of 7.5%.Gross domestic product probably surged 2.3% in the final three months of last year from the prior quarter, economists estimate ahead of data Wednesday. It likely fell 2% from a year earlier, with GDP not expected to return to pre-pandemic levels until mid-year.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Warren Buffett's enthusiasm for the future of America and his company Berkshire Hathaway Inc has not been dimmed by the coronavirus pandemic. Buffett used his annual letter to investors to assure he and his successors would be careful stewards of their money at Berkshire, where "the passage of time" and "an inner calm" would help serve them well. Despite the disappearance last year of more than 31,000 jobs from Berkshire's workforce, Buffett retained his trademark optimism, buying back a record $24.7 billion of its stock in 2020 in a sign he considers it undervalued.
While Warren Buffett isn’t known to prognosticate on where interest rates are heading, he warns that fixed-income investors “face a bleak future."
(Bloomberg) -- Australian bonds rallied strongly in early Asia trading Monday with investors focused firmly on yields after last week’s turmoil. Asian stocks looked set for a muted start.Ten-year Australian yields fell more than 20 basis points, paring some of last week’s 48-basis-point surge. Treasury futures pointed higher after Friday’s U.S. market rally, which drove the -10-year yield back to 1.40%. Equity futures were steady in Japan and Australian shares edged up. S&P 500 futures advanced after the gauge closed lower Friday, with U.S. tech stocks staging a modest rebound on the last day of a tumultuous week.The Australian dollar reversed some of the prior session’s losses along with its New Zealand counterpart, despite data showing China’s economic recovery slowed in February. Oil climbed.Last week’s selloff in global bonds stabilized after central banks from Asia to Europe moved to calm turmoil that sent Treasury yields to their highest level in a year and spurred a selloff in stocks. Investors are getting increasingly worried that accelerating inflation could trigger a pullback in monetary policy support, despite assurances from the Federal Reserve that higher yields reflect optimism about the outlook for growth.“The market is testing the Fed and global central banks as to how serious they are here,” Al Lord, Lexerd Capital Management chief executive officer, said on Bloomberg TV. “There are growth expectations and growing inflation concerns, and that’s playing out in the markets.”Over the weekend, the U.S. House of Representatives passed President Joe Biden’s $1.9 trillion Covid-19 aid package. The bill heads to the Senate, where Biden will need to woo Republican support or avoid losing a single Democratic vote.Read: Traders on Yield Watch in Bond Markets ‘Not for Faint-Hearted’Meanwhile, China’s economic recovery slowed in February as factories shut during the Lunar New Year holidays and virus restrictions dampened what’s usually a busy travel season.There are some key events to watch this week:Caixin China manufacturing PMI is due Monday.Reserve Bank of Australia sets monetary policy Tuesday.U.S. Federal Reserve Beige Book is due Wednesday.OPEC+ meeting on output Thursday.Fed Chair Jerome Powell to discuss the economy at a Wall Street Journal event on Thursday.The February U.S. employment report on Friday will provide an update on the speed and direction of the nation’s labor market recovery.Beijing is set to unveil its major economic goals on March 5, when the National People’s Congress convenes for its yearly meeting.These are some of the main moves in markets:StocksS&P 500 futures rose 0.3% as of 8:04 a.m. in Tokyo. The S&P 500 Index fell 0.5%.Nikkei 225 futures were little changed.Australia’s S&P/ASX 200 Index rose 0.3%.Hong Kong’s Hang Seng Index was little changed earlier.CurrenciesThe yen traded at 106.54 per dollar.The offshore yuan was at 6.4785 per dollar.The Bloomberg Dollar Spot Index rose 0.7% Friday.The euro was at $1.2078.The Aussie dollar rose 0.3% to 77.28 U.S. cents.BondsAustralia’s 10-year yield fell 23 basis points to 1.68%.The yield on 10-year Treasuries tumbled 12 basis points to 1.40% Friday.CommoditiesWest Texas Intermediate crude rose 1.3% to $62.26 a barrel.Gold rose 0.3% to $1,738.84 an ounce.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Asia-Pacific stock indexes were pressured as risk assets lost their sheen after global bond yields firmed on expectations of economic expansion.
Warren Buffett makes mistakes too. The 90-year-old billionaire on Saturday admitted he "paid too much" when his Berkshire Hathaway Inc spent $32.1 billion in 2016 to buy aircraft and industrial parts maker Precision Castparts Corp, its largest acquisition. Berkshire wrote off $9.8 billion of Precision's value last August, as the coronavirus pandemic sapped demand for air travel and the Portland, Oregon-based unit's products.
U.S mortgage rates were on the rise at the end of the month, with rising U.S Treasury yields driving rates up amidst a rising house price environment.
The US Small Business Administration (SBA) is expected to issue a rule as soon as Monday that will make loans from the Paycheck Protection Program (PPP) more generous for business owners without employees. Companies and nonprofits without employees have always been eligible for PPP loans. The new rule expected from the SBA will instead base loan amounts off of sole proprietors’ gross income, significantly expanding the amount of money for which they are eligible.
(Bloomberg) -- Turkey’s $736 billion economy outperformed major competitors in the final quarter, as rate cuts and a spending-and-credit binge beat back pandemic restrictions even as the lira collapsed, data will likely show Monday.Gross domestic product probably rose 6.9% from a year earlier, according to the median of 20 forecasts in a Bloomberg survey, more than in any other G-20 nation, including China. The growth push weakened the currency by 20% in 2020 and kept headline inflation in double digits for the entire year.The data will expose the challenge facing central bank Governor Naci Agbal as he looks to cool growth and restore price stability without triggering a steep slowdown in activity and a jump in unemployment.“The key drivers of the economic activity in the last quarter were industrial production and credit growth,” said Can Ayan, an Istanbul-based economist at Aktif Bank, who ranks second among forecasters of Turkish GDP data. Consumption and government spending will support activity in the first quarter of 2021, lifting growth over the year to 5.2%, Ayan said.The government had pushed banks to ramp up lending to help businesses and consumers ride out the Covid emergency. The credit boom was coupled with a front-loaded easing cycle that helped prime the economy.Agbal has raised the benchmark interest rate by 675 basis points to 17% following his appointment in November, signaling a return to more market-friendly monetary policy. The lira has strengthened 15% since his appointment.The International Monetary Fund raised its growth forecast for Turkey’s economy to 6% in 2021 amid the coronavirus vaccine rollout, while warning the pandemic response worsened pre-existing financial risks despite leading to a strong rebound in economic activity.“With some stability in the currency market, Turkish exporters can finally enjoy the price competitiveness accumulated over recent years,” said JPMorgan Chase & Co.’s London-based analyst Yarkin Cebeci. “Depending on the pace of vaccinations, tourism will most probably be stronger than last year as well.”(Updates with more forecasts in the second paragraph and the first chart)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Eight years ago, when the taper tantrum roiled emerging markets, the so-called Fragile Five of Turkey, Brazil, South Africa, India and Indonesia suffered the most. Today, another sharp spike in U.S. Treasury yields threatens to wreak havoc on at least three of those nations.The Turkish lira, Brazilian real and South African rand led major global declines last week in the worst developing-nation currency selloff since late September. Those exchange rates have the highest one-week implied volatility in the world, with some analysts warning of more pain ahead.Benchmark 10-year Treasury yields surged last week to the highest in more than a year, leading traders to yank forward their expectations on how soon the Federal Reserve will be forced to tighten policy. For now, officials are stressing that the central bank has no plans to raise rates given lingering weakness in the labor market. That will make Fed Chairman Jerome Powell’s comments on Thursday at a Wall Street Journal event all the more interesting.In the developing world, dollar-denominated and local bonds just endured their worst month since last March, while stocks posted their biggest weekly decline in almost a year. MSCI Inc.’s emerging-market equity index slid beneath its 50-day moving average, suggesting the possibility of additional weakness ahead. Meantime, a JPMorgan Chase & Co. gauge tracking volatility in developing-nation assets soared last week by the most since early August.“In the absence of a more concerted effort to slow the spike in yields, emerging markets may remain under pressure,” said Ilya Gofshteyn, a senior strategist at Standard Chartered in New York. “Higher-yielding currencies will continue to be particularly adversely affected and duration across emerging markets is also likely to remain especially vulnerable.”OPEC+ will meet on Thursday, setting the stage for another potential conflict between Russia and Saudi Arabia after last year’s oil-price war. The same day, Malaysian policy makers are expected to keep borrowing costs at a record low of 1.75%. Elsewhere, Turkey may report rising inflation, while purchasing managers’ index figures offer health checks in South Korea and Russia.What to WatchChina’s National People’s Congress will hold its annual session on March 5, featuring President Xi Jinping and other top leaders. This year’s gathering marks the 100th anniversary of the founding of the Communist Party of China. The event may last shorter than the regular two weeks because of the pandemicThe proposed agenda includes an examination of the economy and the 14th five-year plan, Xinhua reportedThe Chinese People’s Political Consultative Conference, an advisory body whose annual meeting is held in conjunction with the NPC, will gather on March 4, according to XinhuaThe meetings probably won’t set a GDP growth target but will emphasize “high-quality” growth considering Covid-19 is still widespread outside China, Iris Pang, an economist at ING in Hong Kong, wrote in a notePolicy actions will also include a road map on how to reach carbon neutrality by 2060 as well as a resumption of de-leveraging reform, she saidThe yuan has the second-best currency return in emerging markets this yearU.S.-Saudi relations will be monitored after an American intelligence report implicated Saudi Arabia’s Crown Prince Mohammed bin Salman in approving the killing of Washington Post columnist Jamal Khashoggi, an act President Joe Biden called “outrageous”Nigeria’s central bank governor suggested the currency was devaluedGovernor Godwin Emefiele said the official exchange rate now stands at 410 to the dollar. That’s 7.6% weaker than the rate of 379 published on the central bank’s websiteBrazilian lawmakers are slated to pick up the debate around emergency cash handoutsThe real is the worst-performing currency in Latin America this year to dateREAD: New Covid Aid Will Loosen Brazil’s Key Fiscal Rules In 2021Bank Negara Malaysia:Malaysia’s central bank may keep its overnight policy rate at a record low 1.75% on Thursday. Traders are reducing bets on further easing amid a surge in global bond yields“Stringent social containment measures have dented Malaysia’s growth recovery trajectory,” Kanika Bhatnagar, an economist at Australia & New Zealand Banking Group Ltd. in Bangalore, wrote in a client note. “Monetary policy will remain accommodative, with the central bank continuing with its purchases of government bonds and carrying out reverse repo operations”Malaysia’s ringgit has weakened 0.7% this year amid an extended lockdown and a delay in vaccine rollouts. At the same time, rising oil prices are starting to improve the outlook for the currency for emerging Asia’s only exporter of the commodityKey DataChina’s manufacturing activity dropped further in February as the Lunar New Year holidays disrupted production, while travel restrictions to contain virus outbreaks cut spending on services. This will be followed by factory gauges from Malaysia, Indonesia, Thailand, Philippines and India on Monday, along with a Caixin gauge for China. South Korea and Taiwan will report similar data TuesdayChina’s factory activity will be watched after the PMI gauge fell in JanuarySouth Korea will report February trade figures Monday, with exports probably rising for a fourth month. January industrial-production numbers are due Tuesday, and final fourth-quarter GDP figures are scheduled for ThursdayThe won has lost 3.3% this yearCPI data for February will come from Indonesia on Monday, South Korea on Thursday, and the Philippines and Thailand on FridayPhilippine real yields turned negative in January after CPI rose to the highest level in two yearsSouth Korea will post foreign reserves data Thursday, followed by Indonesia, Malaysia, Taiwan, Thailand and the Philippines on FridayTurkey’s $736 billion economy topped major competitors in the final quarter, as rate cuts and a spending-and-credit binge beat back virus restrictions even as the lira sank, data will likely show MondayThe lira trimmed its gains to 0.2% after being the best performing currency this yearREAD: Policy Jitters Compound Lira’s Worst Week Since 2018 CrisisREAD: Pandemic Binge Likely Spurred Turkey to Top of Growth LeagueRussia’s purchasing managers’ index, published Monday, is set to pick up in February compared with a year agoA reading of Brazil’s GDP on Wednesday will probably show strong levels of growth in the final three months of 2020 as Latin America’s biggest economy recovered from the shock of Covid-19Traders will also monitor January industrial production figures, to be released on Friday, for signs of a comebackIn Mexico, the central bank will probably raise its GDP growth forecasts for this year and next when it publishes its quarterly inflation report on Wednesday, according to Bloomberg EconomicsColombia’s February consumer price inflation figures are expected to show a contraction from a year earlier amid weak domestic demandThe results may have an impact on investor expectations for the central bank to remain accommodativeWhile traders may see evidence of a recovery in Chile’s January economic activity data, to be released on Monday, Bloomberg Economics expects the gauge to linger below its pre-pandemic levelsA reading of confidence will also be watched for signs of a comeback as vaccines are rolled outFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Warren Buffett conceded a mistake with one of his biggest deals in recent years: the $37.2 billion purchase of Precision Castparts Corp. in 2016.“I paid too much for the company,” the billionaire investor said Saturday in his annual letter. “No one misled me in any way -- I was simply too optimistic about PCC’s normalized profit potential.”Buffett’s Berkshire Hathaway Inc. took an almost $11 billion writedown last year that was largely tied to Precision Castparts, the maker of equipment for aerospace and energy industries based in Portland, Oregon.Precision Castparts has struggled as the coronavirus pandemic slashed demand for flights, prompting airlines to park jets and reduce schedules. That means less need for replacement parts and a big drop in aircraft purchasing. Precision slashed its workforce by about 40% last year, according to Berkshire’s annual report.And the slump in travel is expected to persist, leading to more pressure on the supply chain, according to the International Air Transport Association. Passenger traffic may be limited to as little as a third of pre-pandemic levels, the group said.Buffett said in 2020 that the airline industry had probably changed for good, explaining his decision to drop his holdings in four major carriers.“Last year, my miscalculation was laid bare by adverse developments throughout the aerospace industry, PCC’s most important source of customers,” Buffett said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Warren Buffett's must-read annual letter to Berkshire shareholders is out.
An expert says ultra-low rates "have come to an end," but a refi can still bring savings.
(Bloomberg) -- Danone is paving the way to sell its stake in China Mengniu Dairy Co. later this year by converting the investment into a direct holding.The 9.8% stake is currently held indirectly and has a book value of 850 million euros ($1.03 billion), the world’s largest yogurt maker said in statement Sunday. The majority of the proceeds will be returned to shareholders through a share buyback program.Danone started a strategic review in October, when it also announced plans to sell smaller businesses such as the Vega protein-powder brand and Argentinian operations. Chief Executive Officer Emmanuel Faber also said earlier this month that Danone will divest assets that don’t contribute to profitable growth.Faber is under scrutiny after the stock lost a quarter of its value last year, and has faced increasing pressure from investors. Artisan Partners Asset Management Inc. and Bluebell Capital Partners have called on the company to replace him in order to ensure change and improved performance.Danone CEO to Open Talks With Shareholders as Sales Decline“Today’s announcement is an example of our commitment to deliver portfolio optimization and improve returns to shareholders through disciplined capital allocation,” Chief Financial Officer Juergen Esser said in an emailed statement.Danone first took a stake in Mengniu in 2013, and said that China will remain highly strategic for the company following the sale.The conversion process is subject to regulatory approval and the divestiture could take place in one or several transactions, depending on market conditions, the company said.The stake contributed 57 million euros to Danone’s recurring income from associates in 2019.(Updates with details from first paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
The personal finance guru says plan now for the new $1,400 payment now before Congress.
(Bloomberg) -- Mark Machin’s big mistake got him drummed out of Canada’s national pension manager in a matter of hours. It’s a turn of events that puts the fund in the hands of a former industrial scientist who has made few waves in the world of finance.John Graham was promoted to chief executive officer of the Canada Pension Plan Investment Board on Friday, putting him in charge of a $373 billion global portfolio that includes everything from Britain’s Southampton port to Germany’s Axel Springer media empire to the Petco retail chain.The fund needed a new CEO quickly after Machin was found to have flown to the United Arab Emirates, where he received a Covid-19 vaccine. He had committed a double political sin -- taking a trip in defiance of Prime Minister Justin Trudeau’s warnings to avoid international travel, and getting a shot most other Canadians can’t get because of the country’s limited vaccine supplies.After the Wall Street Journal revealed Machin’s travel on Thursday evening, he resigned.The board surprised some CPPIB managers by turning to Graham, who was not seen as the natural successor to Machin, according to people familiar with the situation. The organization was thrown into a situation it might not have been prepared for: Machin had been CEO for less than five years and wasn’t expected to leave soon.But Graham is described by associates as a safe pick -- smart and sophisticated, with the cautious mindset of a Canadian public servant. He will likely follow the existing strategy of expanding international offices and investing more in private assets, these people said.”When you look at his CV, you see credit, private markets -- that is a significant part of the future as to where that retirement-savings investment process needs to go, in order to be successful and generate net real rates of return that are high enough,” said Keith Ambachtsheer, a pension adviser who has provided strategic advice on governance, finance and investment issues to Canadian pension funds, including CPPIB.Graham, 49, spent almost a decade as a research scientist at Xerox Holdings Corp. after completing a doctorate in physical chemistry. He started at CPPIB in 2008 in the portfolio design group before switching to private investments and credit.In 2018, Machin promoted Graham to senior managing director in charge of a credit investments team spread across Toronto, New York, London and Hong Kong. The group’s recent focus has been growing in Asia and emerging markets, particularly in China, India and Brazil.“These are markets that are going to grow, they are going to be increasingly relevant in the global economy and it makes sense to spend time to build out capability and the infrastructure to invest,” Graham said in a 2019 interview with Bloomberg.Private CreditGraham was also in charge of making a deeper push into private credit, where borrowers bypass traditional capital markets, to fill a need for yield made scarce by low interest rates.In an interview in December, Machin said exuberance in public markets was a signal to him to extend his fund’s already-huge bet on private assets. He had continued to build the Canadian fund’s private holdings since becoming its first foreign-born leader in June 2016.About 25% of CPPIB’s portfolio is in private equity and another 17% in real estate and infrastructure, most of which is private, as of Dec. 31, according to fund disclosures.The strategy is seen as a success, and the fund has returned 9.7% annualized over the past five calendar years after expenses. Almost all of that was on Machin’s watch as CEO.But it wasn’t enough to save his job in a country where a number of public figures have blown up their careers by leaving for vacations or other discretionary reasons during the pandemic.Ontario Finance Minister Rod Phillips was forced to resign on Dec. 31 after it was revealed he took a Caribbean vacation at a time when many businesses in the province had been ordered to shut their doors. A cabinet minister in Alberta, Tracy Allard, quit her post after she went to Hawaii.Nearly a year into the pandemic, “there’s a tremendously fragile public that is out there that is not going to have a lot of tolerance for CEOs who are seen to be flouting the rules,” James Moore, an adviser for law firm Dentons and former Canadian cabinet minister, said in an interview on BNN Bloomberg Television.That may explain why Finance Minister Chrystia Freeland’s office rebuked Machin for his Dubai trip, despite a government practice of saying as little as possible about CPPIB’s operations. The fund’s top executive reports to a government-appointed board, but the directors are businesspeople including Royal Bank of Canada Chairwoman Kathleen Taylor, not political figures.CPPIB’s board missed its chance to send the message that it is truly independent by taking his resignation over one lapse of judgment instead of defending him, according to a senior executive of another large pension fund who asked not to be identified because he isn’t authorized to speak about the situation publicly.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- The past week’s tumult in the $21 trillion Treasuries market has left shell-shocked traders positioned for even more losses ahead -- raising pressure on Federal Reserve officials to respond to the startling run-up in yields.Momentum traders were, as of Thursday’s close, the most short on Treasuries since the 2013 taper tantrum episode, according to Jefferies International. Meanwhile, expected volatility is surging, a warning flag across asset classes, and the market is moving toward pricing in a Fed liftoff from near zero in late 2022, at least a full year earlier than the central bank has signaled. That’s the backdrop in which Fed Chairman Jerome Powell will deliver what are likely his final public comments before a mid-month policy meeting. A bevy of other officials are set to speak before he takes center stage later next week.They’re appearing after a stretch that produced a dizzying list of superlatives, including the steepest weekly jump in five-year yields in months and the biggest convulsions in the yield curve since the early days of the pandemic. What’s more, 10-year yields, a benchmark for global borrowing, soared to the highest level in a year. While they wound up retreating sharply on month-end buying, the initial move helped quell the speculative euphoria that’s supported risky assets. Put it all together, and the coming Fed remarks loom large for all markets, not just bond traders betting on higher yields.“There are two risks heading into next week,” says Gennadiy Goldberg, a senior U.S. rates strategist at TD Securities. “Fed officials could simply stick to their script and suggest that the move higher in rates occurred only for good reasons. This would reward those investors positioned for shorts.”Alternatively, he says, policy makers “could acknowledge that they are somewhat concerned by the market’s pulling forward of rate-hike expectations, reiterate their patient stance, and suggest that too rapid a rise in rates could tighten financial conditions” -- all of which would benefit investors looking to lean against the jump in yields.One Brutal AfternoonTen-year Treasuries ended the week at 1.4%, well below their peak of 1.61% reached Thursday, the highest since February 2020. The most brutal part of that leap came after demand cratered at the Treasury’s 7-year note auction. The bloodletting that ensued, led by the 5-year note, squeezed bets on steepener trades and other positions involving that part of the curve.In Treasury options, the skew of puts to calls is its most extreme since 2012, indicating traders are still positioned for higher yields -- and convexity shocks remain a threat. With traders embracing a rosier view of the economy amid the rollout of vaccines and calls for additional U.S. virus relief, the swaps market is now pricing the Fed’s first hike closer to December 2022, versus mid-2023 at the start of the week. The Fed itself has signaled no tightening through 2023.Another issue adding to the market’s jitters is the looming March 31 expiration of pandemic-era regulatory exemptions that allow banks to buy more bonds. In testimony this week, Powell said the Fed is evaluating what to do about the relief.In a big reversal from a neutral stance just three weeks ago, momentum investors still have ammo to fuel a fresh leg in the bond selloff, according to Jefferies.“It’s the most short since the taper tantrum of 2013, but is still not at an extreme, suggesting that momentum players have more room to add,” said Mohit Kumar, a strategist at Jefferies. “But at this level, any move up in yields is unlikely to be at the same pace or magnitude that the market has seen this week.”The bond bears do have some important figures ahead to focus on. Friday will bring February jobs data, with the median estimate calling for a 171,000 gain in nonfarm payrolls, a rebound from January. Any signs the labor market is failing to recover could roil reflation bets.Vying CrosscurrentsFor Thomas Pluta, global head of linear rates trading at JPMorgan Chase & Co., yields could continue to nudge higher next week and beyond. However, he doesn’t expect the Fed to push back against the climb by adjusting its bond purchases or duration of its Treasuries holdings, at least for now.Further turbulence is possible, says Jamie Anderson, head of U.S. trading for Insight Investment, amid a large amount of “crosscurrents that are pushing different parts of the rates market.”For next week, the risk is “continued high realized volatility” as any Fed comments on steps to support Treasuries would result in short positions getting squeezed. If the topic isn’t addressed, that may spur selling in anticipation of auctions the following week.There’s at least one other topic traders will be on alert for next week. With a deluge of cash in funding markets pushing front-end rates to zero, there’s the prospect the Fed may have to tinker with the interest rate it pays on excess reserves -- known as IOER -- one of the tools it uses to control its policy target.WHAT TO WATCHEconomic calendar:March 1: Markit manufacturing PMI; construction spending; ISM manufacturingMarch 3: MBA mortgage applications; ADP employment; Markit services PMI; ISM services; Fed Beige BookMarch 4: Challenger job cuts; nonfarm productivity; jobless claims; Langer consumer comfort; factory, durable goods and capital goods ordersMarch 5: Nonfarm payrolls; trade balance; consumer creditFed calendar:March 1: New York Fed’s John Williams; Governor Lael Brainard; Atlanta Fed’s Raphael Bostic, Cleveland Fed’s Loretta Mester, Minneapolis Fed’s Neel Kashkari on virtual panelMarch 2: Brainard; San Francisco Fed’s Mary DalyMarch 3: Philadelphia Fed’s Patrick Harker; Bostic; Chicago Fed’s Charles Evans; Beige BookMarch 4: Powell discusses the U.S. economy at virtual event; BosticAuction schedule:March 1: 13-, 26-week billsMarch 2: 42-day cash-management billsMarch 4: 4-, 8-week billsFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Some analysts worry that rising bond yields might prompt the Federal Reserve to tighten historically loose monetary policy, prompting a correction in assets perceived as risky.
The payments in President Biden's COVID relief plan will rely on an IRS formula.