Japan Bond Yields Fall Under Zero, Government Paid To Borrow by Jason Galanis

By Jason Galanis

Treasury bond yields have experienced some interesting movements around the world. However, I, Jason Galanis, believe what is going on in Japan is insane.

The most interesting movements recently occurred in the Japanese market, where Treasury note yields turned negative for the first time in about five years.

Treasury note yields in Japan went negative last month, right after the European Central Bank became the first major monetary authority to allow rates to hit below zero levels. The three month Treasury note yields were at minus 0.08 percent as early as October 23, while the six month security saw a yield of minus 0.05 percent.

And, interestingly enough, investors are actually making money by buying three month notes and selling them to the Bank of Japan. According to financial analysts in Japan, they’re able to continue doing this even if the yields are negative.

Jason Galanis

Jason Galanis: “Can what is currently going on in the Japanese bond market be considered insanity?”

Earlier this month, some speculation spurred concerns about whether the current events would even be possible. Then, the Bank of Japan didn’t buy all of the 3 trillion yen worth of bills they sought to acquire from the market.

That spurred concerns that the central bank would increase buying of longer-term bonds. At the start of October, the central bank stated they would buy 3.5 trillion yen worth of notes, considered a record purchase.

Analysts, on the other hand, have an idea about why yields suddenly turned negative. Since the Bank of Japan doesn’t have a lower limit for the note-buying operations’ yields, the yields themselves more or less turned negative due to that. Now, the decline in the yields will ‘play a role in supporting longer term debts.’

The Bank of Japan did continue to buy notes, particularly those with negative yields, in the last month. The note buying was one part of their goal to increase the [country's] monetary base on an annual basis, starting from 60 trillion yen to as much as 70 trillion.

The yields are expected to stay well below zero for the next few months, according to analysts.

European Central Bank’s Bond Purchase Sinks Euro by Jason Galanis

By Jason Galanis

The euro has had a tumultuous month, rising slightly when the economic waters are calm and then falling right back down again once something – yet again – stirs the pot in the European economy. So, I, Jason Galanis, am not surprised with the most recent sharp dip.

This Tuesday, the euro yet again fell against the dollar. It fell more than a half-cent against the dollar, following reports that the European Central Bank ‘may be considering buying corporate bonds as soon as December in an effort to help revive the Euro-zone’s economy.’

The euro, which did go up against the dollar earlier in the day, fell to a day low of $1.27575 after the news broke. Later in the day, it settled to $1.2767, down one-quarter percent for the day.

Jason Galanis

Jason Galanis: “How unexpected is the most recent Euro dip?”

The ECB, should they decide to buy bonds, will begin buying bonds as soon as early next year.

Not only that, should they buy bonds, it would help ‘widen’ the private sector asset buying program that the European Central Bank established this past Monday. This would also have the effect of adding to the number of freshly minted Euros that would be put into circulation without potentially risking controversy by purchasing government bonds.

To add onto the effects that such a move would make, it would also suppress bond yields held in euros. Though, it would appear the market doesn’t think so yet—after the news broke over the past week, German government bond yields saw a bit of rise.

Economic experts and strategists see the ECB’s impending move as a ‘relatively good one.’ They think that the move will ‘increase the potential scale of purchases that [the central bank] can make should they choose to expend into the corporate bond market.’

It appears the different directions of the United States and Euro-zone’s monetary policy have somewhat influenced the US dollar’s performance against the euro. Those diverging directions have been a central argument among officials who have been supporting a ‘run to go higher for the dollar’ since this May.

Many major banks, as a result, have positioned themselves behind a radical shift in the value of the dollar over the next two years, which would take [the dollar] about 10 percent higher, and potentially close to parity with the aforementioned currency.

U.S. Bond Market Prices Drop, While Consumer Prices Rise

By Jason Galanis

Investors have mixed economic emotions as of late. Just like most market participants, I, Jason Galanis, am shocked about the steep decline of U.S. bond prices combined with the strong spike in consumer prices.

Wednesday saw U.S. Treasuries fall, right as data showed a slight rebound in U.S. consumer prices that occurred in September. The news undoubtedly caused an effect: it quelled some bets that assumed the Federal Reserve may postpone their projected plans to raise interest rates by next year.

Jason Galanis

Jason Galanis: “CPI is up and bond prices are down, does this make economic sense?”

It’s the global slump that’s making people worry about the Fed’s next move. Not only do disinflation worries bother the United States, but it’s also bothering Europe. Both worries amid the global slump have made U.S. policymakers assume that the Fed will stick with their near-zero interest rate in order to keep supporting the rather modest economy recovery.

Though, it looks like the markets may get their answer regarding that matter soon: The Federal Open Market Committee is expected to meet by next Tuesday and Wednesday.

In other related news, the U.S. Department of Labor recently broke news concerning the Consumer Price Index, otherwise known as the government’s inflation gauge. According to their statement, the CPI ‘edged up a little – 0.1 percent – last month.’ This movement came after the CPI saw a 0.2 percent drop back in August.

Of course, the inflation-related news spurred the selling of Treasuries. The selling sent the then-current benchmark yields to their highest point in a week—rising to as much as 2.25 percent. 30-year yields settled well around 3 percent in early trading this week.

The sudden increase was immediately contrasted against the 16-month low seen last week—as low as 1.865 percent. The hard drop was attributed to the concerns about the lack of global economic growth and the sudden purchasing of Treasuries buying to stifle short exit bets held against them.

The aforementioned CPI report also buffed Treasury Inflation-Protected Securities, where their principal and interest payments were handily adjusted against the projected CPI. The yield gaps between the aforementioned TIPS and standard Treasures widened considerably, leaving their lowest known levels since 2011.

Sluggish Global Growth Threatens U.S. Economy by Jason Galanis

By Jason Galanis

The global economy has been sluggish over the past few weeks. I, Jason Galanis, believe is is finally weighing down the U.S. economy.

Deflation in Europe, economic slowdown in China and various other emerging markets are just some happenings in the global economy that are contributing to the slowdown—and, they’re also threatening to drag down the U.S. economy with them.

The global slowdown is more or less looming over the United States economy, especially in a time where the Federal Reserve plans to dial back several of their initiatives that helped bolster the economy back into somewhat good recovery over the past few years.

Jason Galanis

Jason Galanis: “Is sluggish world economy going to severely impact the U.S. economy?”

Much of the recovery happened in the job market and in the housing market—somewhat. Over the past few months, the overall job growth within the country has been strong; however, the housing market is still recovering, where some markets have strong showings, while others aren’t as good. Either way, it’s enough for consumers to exercise caution in the housing market.

Despite that, many economic experts say the U.S. economy’s growth is rather good. But, just as many experts say that the U.S. can’t keep growing its economy on its own—it’ll also need some help from the rest of the world.

Experts say that the United States can’t ‘grow on its own in the medium to long term’ if the rest of the world doesn’t contribute. While, theoretically, that could work, much of the world’s economy is experiencing significant slowdown.

Besides the issues in Europe and China, volatile stock markets, falling commodity prices and declining production output/demand in emerging markets are harming the United States’ economic growth. Not only that, tensions with the Russia-Ukraine crisis and the Ebola virus crisis are also playing a role in potentially stifling the economy.

Even as the ‘growth engine of the world’s economy,’ the United States can’t gain any more momentum (in economic growth) if other regions aren’t performing as well. The global economic rut, more or less, presents a challenge to the United States if the recent news is to go by.

Moody’s Cuts Russia Credit Rating Amid Slow Economic Growth by Jason Galanis

By Jason Galanis

Economic concerns in Russia have resulted in a move by Moody’s Investors Services this past Monday. Moody’s has downgraded the country’s credit rating from its previous Baa1 level to Baa2. I, Jason Galanis, believe further moves could be imminent as well. Since, they have projected a ‘negative outlook’ for the rating after administering the evaluation.

The evaluation was similar to evaluations made by other credit rating agencies, Fitch Ratings Ltd. and Standards & Poor’s. Fitch retained a rating much in line with Moody’s, while Standards & Poor’s rating remained a grade above the former. Standards & Poor’s notably lowered Russia’s credit grade to BBB- back in April.

Jason Galanis

Jason Galanis: “Could Russian credit rating downgrades continue?”

Along with the credit degradation, the ruble weakened 0.7 percent against the dollar.

The economic concerns come at a time when Russia has spent $13 billion on foreign reserves over the past month, which played a role in helping slow a weakening ruble.

Despite the deteriorating sentiment that weighs on the ruble, Moody’s cut isn’t seen as a ‘critical move’, according to the chief economist for Russia’s Bank of America Corp. Though a downgrade, it actually helps maintain Russia’s investment grade status. How long that will last remains to be seen.

Reserves are draining in the country, particularly since penalties have blocked [Russian] companies from accessing western debt markets. That has played a role in increasingly deepening Russia’s economic issues. On top of that, oil trades have hit four year lows.

And, to add to an increasingly dismal outlook, Russia’s foreign reserves have already had nearly $60 billion expended on various measures aimed to bolster the economy in some way. As recent as last week, the Bank of Russia sold over $2 billion of those reserves, according to an officially issued statement via their website.

Moody’s analyst Kristin Lindow explained the reasoning behind the downgrade. She said that ‘the downgrade was driven by Russia’s growing and subdued medium-term growth prospects.’ The gradual ongoing of the country’s international reserves essentially, according to Lindow, contributed to Russia’s weakened creditworthiness.