compassion, collaboration & cooperation iN transistion
... have fallen below zero for the time in history as Brexit fears send
investors scurrying into safe-havens, and Europe slides deeper into the
psychological trap of deflation. The eurozone is rapidly running out of
AAA and AA-rated sovereign bonds for sale as the European Central Bank
mops up the debt market under its quantitative easing programme, leaving
pension funds and insurers desperately short of assets needed to match
liabilities. Yields tumbled across the eurozone’s core states and the Nordic
bloc, briefly touching minus 0.006pc in Germany. Two thirds of the entire
stock of German government debt is now trading at negative rates.
The pattern is all too familiar to economists in Japan, where bond yields
have been sliding for a quarter of a century and are still falling, reaching
-0.19pc on ten-year maturities this week. The proverbial graveyard is
full of traders that tried to bet against this trend, misjudging the
deeper forces at work. Burned by hard experience, Japanese investors
have been among the biggest buyers of Bunds and core-EMU bonds.
“When nobody else was long, they were buying by the bucket load,”
said one trader. Ominously, the yields of high-debt states on the eurozone
periphery have ratcheting up over recent days, as have Polish and Balkan
yields, a warning sign of where stress may lies if Britain votes to leave the
EU next week.
Polls showing the Leave campaign pulling ahead have astonished investors
overseas, and even in the City of London where the financial subculture is
like a foreign country. “It is Brexit that has lit a fire under this,” said
Mark Dowding from Blue Bay.
“There has been this deep-seated complacency among investors –
almost arrogance – that the British would come to their senses, see
reason, and go along with the status quo. Now they realise that it is
on a knife-edge. The question they are asking is whether Brexit is the
end of the European Union. They fear that it could be a Black Swan
event for financial markets” he said.
The sudden shift in the referendum landscape has caught traders off guard
with a large short position on the bond market, many taking out complex
options contracts that have gone horribly wrong.
“There is a big short-squeeze going on. They just didn’t think yields
could fall any further,” said Marc Ostwald, a bond veteran at ADM.
Ambrose Evans-Pritchard - The Telegraph
Add a Comment