Yields are rising and interest rate curves are steepening around the globe as bond markets continue to sell off. Traders are concerned that the return of rising Covid-19 infection rates will require extensive further support from central banks and governments, and that this support will be funded through a tsunami of bond issuance.
The likely oversupply of the highest investment grade bonds has implications for all asset classes. Normally a sign of confidence, the US dollar is weakening for precisely the opposite reason. With the highest level of infections and the world’s largest economy, the expansion in US issuance could lead the world, and the subsequent increase in money supply from current all-time highs is weighing on the world’s reserve currency.
Despite the increasing competition for investment funds, European shares were largely flat and US stocks finished in the green after a late rally. Banks led the gains as investors postulated a profitable expansion of balance sheets. This morning, Nasdaq futures gave up gains after Intel shocked investors with a third quarter decline in sales and profits, plummeting more than 10% in after market trading.
Asia Pacific trading is off to a cautious start. New Zealand inflation numbers came in below estimates, recording a 1.4% increase year on year. Australian PMIs were mixed, with disappointment in manufacturing offset by stronger service activity. Tonight brings PMI reads in the UK, France and Germany.