Bonds and demand: Guardian get it wrong
In a story on the global bond market’s response to coronavirus, the Guardian tells its readers: “The global bond markets, which handle hundreds of billions of trades every day, are where governments and companies go to borrow funds from investors.” There are not hundreds of billions of trades in bonds every day. The hundreds of billions is the value of the bonds being traded not the number of trades.
We’re then told:
At the outset of the Covid-19 outbreak, bond markets froze as investors panic bought highly rated government bonds and the number of sellers shrank.
The US Federal Reserve, the Bank of England, the Bank of Japan and the European Central bank, which oversee the largest debt markets, stepped in to expand the number of bonds on offer and promised to meet demand while the crisis continued.
Demand has been supported by the Bank of England’s pledge to “create” £200bn of electronic funds to purchase more bonds as part of its quantitative easing programme, adding to the £435bn of assets on its balance sheet.
That’s not supporting demand. That’s meeting demand by enlarging supply.
As for the US, Bnaron’s notes:
“We have no idea how long this will be,” said Yousef Abbasi, global market strategist for U.S. institutional equities at INTL FCStone said. “Right now, fundamentals don’t matter because there is very little clarity as to when the economy can restart — and depending on how long this goes — what the economy will look like when it does restart.”
These uncertainties aside, there are several indicators that bolster the case that a recovery for the stock market may have begun, said Michael Arone, chief investment strategist at State Street Global Advisors.
“The severe indiscriminate selling we saw prior to last week has abated,” he said, noting that through last Monday, nearly every asset class, including gold, U.S. Treasury bonds and stocks were being sold off. “It was that classic capitulation move to cash,” whereas in more recent sessions, bonds have rallied when stocks retreated and vice-versa, typical of normal behavior in financial markets.
Cash is king.
Posted: 8th, April 2020 | In: Money, News Comment | TrackBack | Permalink
