PrefBlog

These are strange times for bond markets:

The Bank for International Settlements estimates the amount of bonds outstanding has surged more than 40 percent since 2007 as countries such as the U.S. increased deficits to pull their economies out of recession and companies locked in low-cost financing as central banks dropped interest rates.

Even so, a shortfall emerged. At a time when investors scarred by the worst economic crisis since the Great Depression were seeking out the safest assets, central banks in the U.S., U.K. and Japan sapped new supply by purchasing trillions of dollars of bonds in unprecedented stimulus programs.

Global banking regulations designed to limit risk-taking and prevent a repeat of the crisis also boosted buying by requiring that financial firms stockpile highly rated assets.

All that extra demand has helped push down borrowing costs and upended forecasts by economists and strategists who foresaw higher bond yields this year.
…
ECB President Mario Draghi fueled speculation that the bank will start buying government bonds after saying last week officials would broaden debt purchases if the inflation outlook weakens. Analysts estimate consumer prices in the euro area will rise 0.5 percent this year, the least since 2009.

The BOJ, the largest holder of Japan’s government bonds with 20 percent, may end up owning half that market by as early as 2018 as it tries to spur an economy that’s contracted at least five times in the past decade, according to Takuji Okubo, a chief economist at Japan Macro Advisors in Tokyo.

Central banks in the U.S., Europe, Japan and the U.K., along with the major lenders and reserve managers in those regions, are on pace to amass $26 trillion of debt securities by the end of next year, according to JPMorgan.
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And it’s not only the central banks. Global bond funds will probably add $280 billion next year, while pensions and insurers in the U.S., Europe, Japan and the U.K. will buy an estimated $550 billion, according to JPMorgan.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 6bp, FixedResets gaining 5bp and DeemedRetractibles off 1bp. Volatility was average – but all the winners were FixedResets. Volume was slightly below average.

This entry was posted on Monday, November 24th, 2014 at 11:41 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.