Monday, June 12, 2017
Downward pressure on bond yields.
Government bond yields rose in late 2016 as a result of higher inflation and expectations of US fiscal stimulus. However, although GDP growth is picking up in the euro-area, the United States and Japan, inflation pressures remain subdued and US fiscal plans have been delayed. Combined with falling political risk in the euro-area, this has pushed yields down and the global stock of negative-yielding sovereign debt is rising again. Moreover, ultra-accommodative monetary policies continue to supress yields, distorting asset prices and contributing to the mispricing of credit risk.
- China’s attempts to crack down on financial leverage is seen as a bigger risk by Bank of America Merrill Lynch than a euro-area break-up.
- Despite the uncertainty of the UK election result, markets have been calm and the S&P 500 equity index hit a new intraday high on June 9.
- The loss of momentum behind reflation trading has led the dollar index to fall by 5% this year and it will remain under pressure.
- US technology shares fell sharply on June 9, raising concerns that their surge this year leaves them overvalued and at risk of a correction.