Julius Baer: sobre las rentabilidades en los bonos y los metales industriales

Redacción - Miercoles, 06 de Mayo

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FIXED INCOME: Global rebound in bond yields – keep the powder dry and wait for better entry points

 

Yields of European and American government bonds rose strongly yesterday, reaching 0.5% for German bonds and 2.2% for US Treasuries; up from the lows of 0.05% and 1.9% two weeks ago. As outlined last Thursday, technical factors explain most of the decline of German yields in early April, which has been corrected now. More open is the rational for higher US yields in an environment of disappointing economic news flow and a weaker dollar.

Some market participants argue that Mid-East sovereign investors have to liquid date their foreign exchange reserves due to falling oil revenues. At the same time, we note that inflation expectations are rising because the oil price has backed up again. Indeed, the US Federal Reserve’s preferred measure for long-term inflation expectation, the five-year forward five-year break even inflation rate, has surpassed the 2%-threshold again.

 

We have been arguing for some time that the German Bund yield level is unsustainable in the medium term and that a correction will start as soon as the market begins to speculate on the end of the European Central Bank’s asset purchase programme. The yield is not sufficiently high to bring us back into the EUR market and we recommend investors to remain on the sidelines. In the USD market, we sensed some room for volatility and therefore prefer the more liquid segments like US high grade bonds, or segments that pay higher spreads like hard currency emerging market corporate debt.

 

Yields are still below their fair value in the euro area and investors should stay cautious. We cannot tell with certainty what drives up yields in the US at this stage and thus stay with the more liquid instruments – it is too early to return to USD high yield bonds, in our view.

Markus Allenspach, Head Fixed Income Research, Julius Baer

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COMMODITIES: China stimulus hopes fuel base metals

 

Base metals continue to rally. The London Metal Exchange (LME) index has risen close to 10% since late April with aluminium and copper approaching the USD 2,000 and USD 6,500 per tonne levels. While metals demand should seasonally strengthen into summer, we believe hopes for more economic stimulus in China fuelled the recent rally. According to Bar-clays, stabilising the economy has become the top priority for the Chinese government, rather than balancing its structure and promoting reform. Short-covering in metal futures and US dollar weakness likely added to the rally that should run out of steam rather quickly. We see the aluminium market well supplied on the back of surging Chinese exports and softening demand from financing deals. The copper market appears more balanced as short-term supply disruptions are offset by weak Chinese demand. We maintain a neutral short-term view on both aluminium and copper. China’s deepening and broadening proper-ty market slump remains the key downside risk to prices.

The base metals’ rally was fuelled by hopes for economic stimulus in China but should run out of steam rather quickly. We maintain a neutral view on aluminium and copper. Downside risks are primarily related to China’s property market slump.

Carsten Menke, Commodities Research Analyst, Julius Baer

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