Bond yields keep falling, stocks try to steady

SYDNEY - 28 March 2019: Global bond yields continued to spiral lower in Asia on Thursday as recession fears fed expectations of more policy easing by major central banks, though some share markets in the region did manage to steady after an early sell off.

Sterling was also hit by a bout of Brexit blues after a round of votes in the U.K. parliament failed to produce any new plan to manage its divorce from the European Union.

A Reuters report that the United States and China had made progress in all areas in trade talks seemed to bolster sentiment a little, though sticking points still remained and there was no definite timetable for a deal.

MSCI’s broadest index of Asia-Pacific shares outside Japan recouped early losses to be almost flat, as did Shanghai blue chips.

Japan’s Nikkei still fell 1.4 percent, while E-Mini futures for the S&P 500 were off 0.2 percent.

Worries that the inversion of the U.S. Treasury curve signaled a future recession only deepened as 10-year yields fell to a fresh 15-month low at 2.34 percent.

“We think that the ongoing flattening, or outright inversion, of the curve is a bad sign for equities, as it usually has been in the past,” said Oliver Jones, markets economist at Capital Economics.

“Arguments that the yield curve is no longer a reliable indicator seem to resurface every time it inverts, only to be subsequently proved wrong.”

The latest lunge lower was led by German bunds where 10-year yields dived deeper into negative territory after European Central Bank President Mario Draghi said a hike in interest rates could be further delayed.

Plans to mitigate the side-effects of negative interest rates could also be considered, suggesting the central bank was preparing for an extended period below zero.

That shift came hot on the heels of a dovish surprise on Wednesday from the Reserve Bank of New Zealand, which abandoned its neutral bias to say the next rate move would likely be down.

Yields in both New Zealand and neighbor Australia, quickly sank to record lows in response. [AUD/]

The RBNZ explicitly cited all the easing moves by other central banks as a reason for its turnaround since they had put unwanted upward pressure on the local dollar.

EASING GOES GLOBAL

That is one reason markets are wagering the Reserve Bank of Australia will also be forced to cut rates, simply to stop its currency from appreciating. Policy easing then becomes a self-fulfilling cycle across the world.

“The continued dovish shift by G7 central banks, ongoing support by the Chinese authorities, and the move by the RBNZ will keep pressure on the RBA to also move in the same direction, however reluctantly,” said Su-Lin Ong, head of Australian and New Zealand strategy at RBC Capital Markets.

“It is, essentially, a global policy cycle.”

The RBNZ’s action had the desired effect on its currency, which was pinned at $0.6816 after diving 1.6 percent overnight. The Aussie was on the defensive at $0.7090.

Draghi’s comments likewise tugged the euro back to $1.1250, and left the U.S. dollar a fraction firmer against a basket of its competitors at 96.874.

Only the yen held its own thanks to its safe-haven status and firmed to 110.20 per dollar.

Sterling had its own troubles as an offer by British Prime Minister Theresa May to quit to get her European Union deal through parliament failed, leaving uncertainty hanging over the Brexit process.

That left the pound idling at $1.3190, though that was up from an early trough of $1.3140.

In commodity markets, palladium was the focus of attention after sliding 7 percent on Wednesday as its meteoric rally finally ran into profit-taking. It was down 0.4 percent on Thursday.

Gold was relatively sedate at $1,310.85 per ounce. [GOL/]

Oil prices nursed modest losses after data showed U.S. crude inventories grew more than expected last week as a Texas chemical spill hampered exports. [O/R]

U.S. crude was last down 18 cents at $59.23 a barrel, while Brent crude futures lost 10 cents to $67.73.