Take Five: Increasing bond yield may be the real thing

LONDON (Reuters) –

1 / YIELD JOLT

So far the U.S. Treasury product has not outperformed the jolt equities markets off the top levels. That will change if a “true” yield – adjusted for inflation – comes off.

The real result of last year’s outturn was a flood of money into stocks; although expensive, they looked good compared to a real minus 1% yield.

But full-time government spending plans and economic reopening prospects have lifted Finance’s 30-year real yield to eight-month highs, just 11 points a 0% shy base. Five-week peaks have a true ten-year yield.

There is little consensus about when a product becomes a problem for equalities. But some assets are already seeing an impact – gold for example is struggling to compete with high-income investments as yields rise and are down 6% this year.

Graphic: It’s getting real –

2 / KIWI TAPER

Wednesday’s Reserve Bank of New Zealand meeting may tell us whether it will be the first country to reduce COVID-19 cases almost entirely but also the first to consider cutting back monetary policy support.

Much has changed since the RBNZ policy statement in November. The kiwi economy is outpacing forecasts and markets are no longer pricing in negative rates.

Governor Adrian Orr will review forecasts for growth and inflation but has a communication challenge: recognizing development without building markets.

The rate hike may be years away but investors are expected to slow the stimulus – 10-year sovereign bond yields are up 50 bps this year.

Graphic: New Zealand Economy Kicks Back –

3 / DEBT, DEFAULTS, DEBATES

Debt relief for high-income economies will be on the agenda of G20 finance officials when they meet on February 26-27.

They will discuss the idea of ​​expanding IMF funding and the campaign allowing the poorest countries to impose a six-month ban on some debt payments, as well as more complete relief. The G20 is also being asked to lead a global COVID-19 vaccination plan.

This is the first G20 meeting since Joe Biden took over as president of the United States, so the tone may be very different from the Trump years that broke many global alliances. That could be a positive move at a time when countries are struggling to ensure that economic recovery stays on track.

Graphic: Debt-to-GDP ratios of DSSI countries with sovereignty bonds –

4 / TURNING 140

The British pound has grown into an unexpected money market poster child for the subject of COVID-19 recovery.

It has marked a major milestone in hitting $ 1.40, a nearly three-year high. But just two months ago he was pushed into the dangers of Brexit and the worst economic outcome of any major industrialized country.

Since mid-December, sterling has strengthened by around 5.5% against the dollar and 6.5% against the euro as the British vaccination program began to get off to a very successful start. Earlier end expectations on locks have been raised 2% against the dollar in February.

Some people think the pound is expensive. A Reuters poll predicted that the US economy would recover to pre-release levels within a year but saw Britain take twice that time.

There is also the question of whether the Bank of England could take interest rates negative. Money markets expect it to, though not before the second half of 2022.

Graphic: GBP FX main player –

SPAC-TION 5 / SPAC-TACULAR, SPAC-KMAN.

Journalists are going through their pun pictures for ways to cover the lack of special purpose construction companies (SPACs) that have hit markets over the past year.

SPACs are usually blank check companies that raise money in an initial public offering with the aim of buying and taking publicly a private company.

Already this year, 144 SPACs have raised $ 45.7 billion, data from SPAC Research shows, often backed by investors and celebrities.

The movement is not without a bad press. Investment banks that manage the contracts earn taxes by finding the available company SPAC – within two years. That raises the fear that there will not be enough due diligence.

While specifically U.S., SPACs are also exploding in Europe. Ex-UniCredit CEO Jean-Pierre Mustier, and German tycoons Christian Angermayer and Klaus Hommels have named SPACn.

The launch of SPAC is plentiful as only real buildings – or “deSPACing” – will show whether the move is lasting.

Graphic: SPAC drive –