Bonds fall with emerging markets as dollar gets lift from Fed’s Yellen
THE Fed factor dominated global markets, battering bonds and developing-nation currencies while lifting the dollar. Treasury 10-year futures slid the most in almost two weeks and German bunds declined after Federal Reserve (the Fed) Chairman Janet Yellen said an interestrate increase is likely in coming months. Emerging-market currencies headed toward the worst month since August and gold fell for a ninth day in its longest losing streak in a year. The dollar strengthened against most of its 16 major peers. European stocks swung between gains and losses, with trading volumes less than half the daily average, amid market closures in the United States and United Kingdom.
The Bloomberg Dollar Spot Index was poised for its biggest monthly jump since September 2014, having surged as Fed eral Funds futures showed the odds of a US interest- rate hike by July more than doubled to 54 percent. Yellen said on Friday that an improving American economy would probably warrant another increase in borrowing costs “in the coming months,” a view also expressed by several regional Fed chiefs in recent weeks.
“What Yellen said confirmed the Fed is open for a June rate increase, and it’s now data dependent,” said Carl Hammer, chief currency strategist at SEB A/B in Stockholm. “The Fed might be on hold next month due to Britain’s European Union referendum, but then make it explicit there will be an increase in July. Our view is that there’s more room to add to positive dollar bets.”
Yellen spoke after data showed US economic growth picked up more than was previously estimated in the first quarter. Reports scheduled for this week include April personal income and spending, and May payrolls.
TEN YEAR Treasury futures contracts for September delivery slid 13/32, or $4.06 per $1,000 face amount, to 129 9/32, based on electronic trading at the Chicago Board of Trade.
German 10-year bunds fell, with yields rising three basis points to 0.17 percent, erasing their three-basis point drop in the previous week. Yields on similar-maturity French bonds rose four basis points to 0.51 percent.
Commodity trader Noble Group Ltd.’s dollar bonds due January 2020 climbed to their highest since November, pushing their yield down by 31 basis points to 15.79 percent. The company announced plans to sell some of its US operations and said CEO Yusuf Alireza has resigned, with two coheads set to replace him.
“The resignation of the CEO is good news for bondholders, as it shows that the board is serious about stabilizing the company’s profile by taking a less aggressive approach,” says Charles Macgregor, head of Asian high-yield research in Singapore at Lucror Analytics. “The sale of the Americas Energy Solutions will generate meaningful cash that should resolve liquidity concerns.”
THE MSCI Emerging Markets Currency Index declined 0.3 percent at 7:40 a.m. in New York, and is down 3 percent in May, snapping a three-month run of gains. South Korea’s won retreated 1 percent on Monday. For the month, South Africa’s rand led losses, sliding 9.8 percent.
The yuan dropped as much as 0.3 percent to a four-month low in Shanghai after the People’s Bank of China weakened its daily fixing by 0.45 percent. With the United States poised to raise interest rates and pressure building on China to ease monetary policy, cash outflows will accelerate, said Song Yu, China economist for Goldman Sachs/ Gao Hua Securities Co. in Beijing.
The Bloomberg Dollar Spot Index advanced 0.1 percent, bringing its gain in May to 3.6 percent. Sweden’s krona advanced against all of its 16 major currencies, as data showed the nation’s economy continued to expand in the first quarter amid record stimulus from the central bank.
The euro gained, after a report showed economic confidence in the 19-nation currency bloc rose for a sec- ond month in May to a four-month high. The currency climbed 0.2 percent to $1.1142, paring the decline this month to 2.7 percent.
The yen fell as much as 1 percent to 111.45 per dollar after an aide to Prime Minister Shinzo Abe said a salestax increase will probably be delayed. Japan released retail sales figures on Monday, showing that growth stalled in Asia’s second-biggest economy, bolstering the case for a planned sales-tax increase to be postponed.
GOLD for immediate delivery dropped as much as 1 percent to $ 1,199.80 an ounce, a level last seen in February, and is down 7 percent in May, the biggest monthly decline since June 2013. Money managers’ cut bullish bets on the metal by the most this year during the week ended May 24, according to US Commodity Futures Trading Commission data. Silver slid 1.5 percent, while platinum retreated 0.5 percent, as the prospect of higher US borrowing costs damped the appeal of noninterest- bearing assets.
Copper futures slipped 0.9 percent in New York, snapping a four- day advance. The London Metal Exchange was closed on Monday.