miércoles, 29 de mayo de 2013

miércoles, mayo 29, 2013

HEARD ON THE STREET

Updated May 28, 2013, 12:22 p.m. ET

Bond Yields Jump to a Different Beat

By RICHARD BARLEY

 
Government-bond investors have spent months being lulled by the harmony of central banks on the subject of monetary policy. But some discordant notes are creeping into the melody.

After a long period where seemingly never-ending loose monetary policy has driven U.S. Treasurys, German bunds, U.K. gilts and Japanese government bonds, greater divergence is coming as markets focus more on local economic fundamentals.

Two big developments stand out. First, the Bank of Japan's radical effort to raise inflation expectations has boosted volatility in Japanese bond markets: 10-year yields have swung wildly and briefly spiked above 1% last week. This may yet be a temporary bout of indigestion, however.

Clearer communication from the BOJ about its planned bond purchases and further reforms by the government could calm the market and rein in yields.

Second, the U.S. Federal Reserve is now clearly debating whether and when to curtail its bond purchases. That has investors paying closer attention to economic data. In the second half of 2012, U.S. Treasury yields became disconnected from economic surprises as the Fed offered an extended promise of easy money, Goldman Sachs GS +1.95% notes. They are now reverting to better reflect the U.S. outlook, with 10-year yields jumping 0.1 percentage point to 2.12% Tuesday and perhaps heading toward 2.5% in the second half of the year.

The European outlook remains uncertain. U.K. investors are awaiting the arrival of new Bank of England Gov. Mark Carney to see whether a new era of "monetary activism" is about to dawn. But with inflation stubbornly above target and growth perhaps picking up, his room to maneuver may be limited, potentially pushing 10-year gilt yields higher from their current level of 1.96%.

Meanwhile, the European Central Bank appears more likely to cut rates further than anything else. With the euro-zone economy stuck in recession and inflation falling, German bunds could yet benefit, even though 10-year yields remain low at only 1.45%.

Differences, or spreads, between the yields on German bunds and their U.S. and U.K. peers are widening already. That trend could well continue. Failure by the BOJ to calm the Japanese market could throw further discord into the mix. Having listened to the orchestra for so long, investors will need to home in on each player's individual notes to avoid miscues.


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