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Amount of Negative-Yielding Bonds Surges on Economic Fears
By Daniel Kruger, bond market reporter
A growing number of investors are paying governments in Europe for the privilege of holding their bonds.
The amount of negative-yielding government bonds outstanding
through 2049 has risen by 20% this year to about $10 trillion, the
highest level since 2016, according to data from Deutsche Bank Securities.
The expanding pool of such bonds—which guarantee that a buyer will
receive less in repayment and periodic interest than they
paid—highlights how expectations for growth in much of the developed
world have deteriorated.
also mean it will be difficult for developed economies to revive growth
should they enter a recession, with historically low interest rates
still in place. The European Central Bank’s deposit rate is currently
-0.4%, and policy makers this year ended bond purchases that were
intended to boost growth and inflation, adding trillions of euros of
government and corporate bonds to the ECB’s balance sheet.
“It’s just not a great starting point to already have negative interest
rates,” said Torsten Slok, chief economist at Deutsche Bank Securities.
“It’s getting more and more difficult for policy makers to respond to
Policy makers upended expectations for a rate increase later this year, and lowered growth and inflation expectations, suggesting negative interest rates will remain in place well into the future. In March, the ECB slashed its forecast
for real gross domestic product growth this year to 1.1%, from 1.7%
just three months ago, and its forecast for consumer-price inflation to
1.2% from 1.6%.
Europe’s growth problems are evident in two of its largest economies.
In Germany, where growth has stalled, officials plan on running a budget
surplus rather than stimulating growth by running a budget deficit.
This is a problem because the country—Europe’s largest economy—could
choke off growth in the rest of the region. By contrast, in Italy,
officials have proposed borrowing more, adding to an already heavy debt
burden, to kickstart persistently slow growth.
The discrepancy highlights the conflicts that can arise from having a
monetary union but not a fiscal union and a political union, said
Gershon Distenfeld, co-head of fixed-income at AllianceBernstein.
Still, Mr. Distenfeld has bought German government debt at negative yields, while hedging the euro against the dollar to make the trade more profitable.
“One day people are going to wake up and say, ‘What was I doing buying
five-year German debt at negative yields?’” he said. “But that may not
happen in the next year.”
The Dow has climbed 5.7% since November, putting the blue-chip index
on course to end the six-month November to April span higher for a 10th
consecutive time. That would mark the longest streak since the Dow
posted 16 consecutive gains in that stretch from 1985 to 2000.
About $1.9 billion flowed into government-bond funds during the week
ended April 24, the biggest net inflows in three months, according to a
Bank of America Merrill Lynch analysis of figures from fund tracker EPFR
Amazon extended its weekly winning streak to seven consecutive weeks
Friday, its longest streak since January 2009. If the e-commerce giant
extends its winning streak this week, it would be the longest weekly
winning streak since October 2007.
U.S. personal income and consumer spending for March are expected to rise 0.4% and 0.7%, respectively, from the prior month. The figures are slated for 8:30 a.m. ET.
The personal-consumption-expenditure price index,
excluding food and energy, for March is expected to rise 0.1% from a
month earlier and 1.7% from a year earlier. The data are also expected
at 8:30 a.m.
The Dallas Fed manufacturing survey for April, due at 10:30 a.m., is expected to rise to 10.0 from 8.3 a month earlier.
China's official purchasing-managers index for manufacturing in April is expected to edge down to 50.4 from 50.5 a month earlier. The figures are due at 9 p.m.
Companies ranging from Kleenex maker Kimberly-Clark Corp. to Tide
detergent producer Procter & Gamble Co. have raised prices for core
products in part to offset their own rising costs. PHOTO: ROBERT
Stocks are continuing to climb as inflation remains just right. U.S. stocks are hitting records again after a monthslong drought, powered by fresh signs that the domestic economy is perking up without spurring a jump in inflation.
Traders are bracing for big moves after GE earnings this week. Options traders are betting on an explosive move in General Electric shares after its earnings on Tuesday, a sign that turbulence in the battered stock may not be over.
The supply side of the economy is flashing strength. Signs
are emerging that the supply side of the economy—the workers and the
tools and machines they use to produce goods and services—is becoming energized, improving the chances that faster growth can be sustained.
Oil volatility is putting the 2019 rally under scrutiny. Crude-oil volatility is under scrutiny after President Trump ended waivers on Iran sanctions and then urged OPEC to bolster supply and keep prices low.
Investors are searching for opportunity in an unloved corner of the stock market. European stocks have been among the least liked investments for fund managers in recent months. Yet some investors, sensing Europe’s economic gloom lifting, are gingerly returning to the region.
How Schwab ate Wall Street. The San Francisco firm was once a discount broker for amateurs. CEO Walt Bettinger turned it into something more like a personal-finance supermarket, whose rock-bottom prices are dragging blue-chip rivals in its wake.
The Deutsche deal failure points to a U.S.-European bank divide. The scuttled Deutsche Bank-Commerzbank deal highlights how European banks’ recovery from the financial crisis has lagged well behind that of their U.S. rivals.
Target and Walmart shares were hit by Amazon’s move to one-day shipping. Shares of the retail giants dipped the day after Amazon.com said its Prime members would be getting free one-day delivery instead of its current two-day offer.
What We've Heard on the Street
“Just because Exxon Mobil and Chevron can doesn’t mean they should. The
two oil giants’ spending in the heart of America’s oil patch is
growing, in a split from smaller peers. Their size means they will have
an easier time masking weakening returns.”
Tesla: Elon Musk reached a deal
late Friday with U.S. regulators that would eliminate the risk of him
being held in contempt for allegedly violating an earlier court order
over his use of Twitter.
Comcast: The stock ticked up 0.4% on Friday to $43.08, a new all-time high, a day after the company said its first-quarter profit was boosted by its high-speed internet business and the recent acquisition of European pay-television operator Sky.
of the software giant rose 5.3% last week, their best week since
November. The stock has notched seven consecutive weeks of gains, its
longest streak since September 2014. Microsoft's market value briefly topped $1 trillion last week for the first time.
Xilinx: The chip maker's stock shed 12% last week, its biggest weekly percentage loss since July 2014.