Article / 03 August 2016 at 8:50 GMT

From the Floor: Is 2015's 'bond hiccup' ready to return?

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By Clemens Bomsdorf

Japan is once again driving markets. Movements in its government bonds, triggered by poorly received Bank of Japan and government stimulus efforts, are impacting world markets and we could see a repetition of April 2015's “bunds hiccup”, says Saxo Bank's Asia macro strategist Kay van-Petersen

On July 29, the Bank of Japan disappointed markets and spiked the yen higher. It fell further yesterday and Japanese government bonds tightened from minus 0.30 to minus 0.08 basis points. Additionally, rumours of a potential government bonds issue of  with a volume of 100bn JPY and maturity of 40 years are adding to this and we see Japanese and German 10-year government bonds now very close with the latter yielding minus 0.029 with the former at minus 0.082.

Van-Petersen strongly feels  that “USDJPY will soon break 100, with a positive NFP being the only near-term event to stem the tide of yen strengthening,” as he puts it. 

There was a hiccup in German bunds in April 2015, and we see a similar movement now:
yield hiccup now and then
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Source: Bloomberg

Concerning equity markets, Peter Garnry, Saxo's head of equity strategy, reports that European banks are under pressure despite the fact that the EPA’s stress tests did not post any overly shocking results. 

The STOXX 600 banks index plunged 5.3% yesterday, sending it back to the level seen during the 2012 Eurozone crisis. Germany’s largest lender, Deutsche Bank, fell to its lowest level since 1992 (read more abut Commerzbank, Germany's secon largest in this article). 

“We have seen an extremely fragile European banking system,” says Garnry, adding that sentiment needs to improve otherwise “we could risk panic”. There is not much trust afoot in the European financial sector and the stress tests did not change this. 

Down to 2012 levels - European banks
It looks different in the US, where Garnry sees AIG as a strong buy. Its quarterly earnings beat market expectations, as foreseen by Garnry, and the company’s turnaround is still on track. AIG is getting rid of non-core assets and is confident that its dividend can be raised significantly over the coming years.

When it comes to Tesla, Garnry is short ahead of Q2 earnings. “Its shares have been surprisingly robust,” he says, adding that he sees great risk on delivery execution. 

On bonds Simon Fasdal, head of Saxo's fixed income desk, says that global core yields are on the rise on concerns that central banks will begin to downscale their quantitative easing programmes. Currently, he notes that equities and bonds are both heading lower, meaning that central banks are still the decisive factor.  

German bunds opened below 166.50 and then went a bit higher; yields are now minus 0.02 and quickly approaching positive territory again.  

The oil price slid back to below $40/barrel and if it continues to fall there is a risk "that oil-dependent economies such as Russia and the energy sector will be clearly negatively impacted," says Fasdal, adding that the low oil price also keeps global core yields low for now 

This, he adds, paves the way for a continued fertile environment for high-yield bonds, particularly in emerging markets
Tesla cars still look great, but Saxo's Peter Garnry is not that positive 
when it comes to the company's prospects. Photo: iStock   

Clemens Bomsdorf is consulting editor at

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios 


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