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Bond markets facing historic losses increase concern over Fed ‘not blinking yet’

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The Federal Reserve has shown no signs of relentless in raising interest rates dramatically, even as its policies have fueled massacres for almost the ages across the world. $53 trillion US bond market.

As a result, borrowers from the US government For big companies and Homebuyers were paying more To reach credit in more than a decade. The payoff – in the end – should be less inflation.

But for many bond investors, keeping the credit taps open for the past nine months means taking the hardest hit from interest rate volatility in their careers, even though the pain may not end.

“We’re buying some Treasurys, because we’re drinking Kool-Aid in the letters from the Federal Reserve,” Jack McIntyre, global fixed income portfolio manager at Brandywine Global Investment Management, said by phone.

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the message Of the central bankers was a vow To bring Nearly 8% inflation in the United States All the way to the Fed’s annual 2% target, with higher interest rates and a smaller balance sheet, even if it means pain for families and businesses.

“But the timing of that is tough, and how much tightening is needed to break inflation,” McIntyre said. “The Fed is not blinking. That is why more pain could be around the corner.”

We see: Fed cook backs policy of higher versus longer interest rates

Worst sale in 40 years

This year’s dramatic bond repricing could give investors a much-needed respite after nine painful months.

Much of the damage to bond prices can be linked to price fluctuations, including the benchmark 10-year Treasury bond yield,
TMUBMUSD10Y,
3.889%

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Which briefly touched 4% in September, the highest level since 2010, before swinging lower and rebounding to nearly 3.9% on Friday.

For a fuller picture of the wreck, sales in Treasurys from 2020 through July 2022 are pegged Worst in 40 years by researchers at the Federal Reserve Bank of New York, but it’s also the third largest since 1971.

“I don’t think the bond market really knows which direction to go,” Arvind Narayanan, senior portfolio manager and co-head of investment grade credit at Vanguard, said over the phone. “You see it in the daily volatility. The US bond market is not supposed to trade 20 basis points a day.”

The volatility in the financial markets may seem a far cry from everyday life, given the Job market roar That the Fed wants to put down. However, safe haven sectors such as Treasurys are down 12% this year (see chart), while lower-risk sectors such as corporate bonds are at -17% as of October 4, on a total return basis.

Historic sale of 2022.

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West Bank, Bloomberg

Stocks sure fell further, with the S&P 500
SPX,
-2.80%

It’s down 23% from the year through Friday, which is the Dow Jones Industrial Average
DJIA,
-2.11%

of about 19% and the Nasdaq Composite Index
COMP,
-3.80%

31% less, according to FactSet.

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Bond yields and prices move in opposite directions. Higher interest rates make bonds issued at lower rates less attractive to investors, while interest rate cuts enhance the attractiveness of bonds that offer higher returns.

“If the pressure in the market continues, and we go into a recession, bonds are likely to go up and outperform from here,” Narayanan said of investment-rated companies’ returns now near 5.6%, or the highest since 2009. But also that “liquidity will remain high”.

cracks appear

Big business and American households seem to be weathering the price storm that has engulfed financial markets, with both groups borrowing or refinancing during the pandemic at historically low rates.

But the seemingly more murky area, despite the recent increase in workers reporting jobs in person, has been the office component of commercial real estate.

We see: Commercial real estate problems are growing with only 9% of office workers in Manhattan returning to their offices full time

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“You have so much space and you could change the world,” said David Petrosinelli, managing director of sales and trading at InspereX, a broker-dealer.

While trading securitized products, from mortgage bonds to asset-backed debt, has been his specialty, Petrosinelli said debt deals across credit markets have recently struggled to cross the line or have been delayed, as issuance terms have worsened.

“I think it’s hard to argue,” he said, specifically regarding commercial mortgage securities with a high exposure to office space, or taking advantage of loans from companies that don’t tolerate high interest rates.

“We haven’t seen anything like a deep recession that has been priced in those areas.”

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Clashes over FTX’s bankruptcy become global

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Disputes are raging around the world over who controls the company’s insolvent funds and crypto assets

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Bitcoin plunges 70% on Standard Chartered’s list of potential disruptions for 2023

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(Bloomberg) — Speculators clinging to the view that the cryptocurrency’s path is over are mostly at risk of a rude awakening in 2023, according to Standard Chartered Bank.

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Another “surprising” scenario that markets could be “underpriced,” Eric Robertson, the bank’s global head of research, wrote in a note Sunday, another bitcoin drop of about 70% to $5,000 next year.

Robertson said demand could shift from bitcoin as a digital version of gold to real gold, leading to a 30% rally in the yellow metal.

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Robertson added that this likely outcome includes a reversal in higher interest rates as economies struggle, more bankruptcies and a collapse in investor confidence in digital assets.

He stressed that he was not making predictions but instead summarizing scenarios that are materially outside the current market consensus.

Arguably, the question of what lies ahead for digital assets wasn’t difficult to answer after the collapse of Sam Bankman-Fried’s FTX exchange and sister trading house Alameda Research. The spreading tremors from the explosion threaten to bring down more crypto companies and token prices.

For some, much of the bad news may already be reflected in the more than 60% drop in bitcoin and a scale of the top 100 tokens over the past year.

“Our bottom line is that most of the forced selling is over, but investors may not be compensated for the market risk incurred in the near term,” Sean Farrell, Fundstrat’s head of digital asset strategy, wrote in a note on Friday.

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Farrell pointed to the ongoing uncertainty surrounding Digital Currency Group, the parent company of beleaguered crypto brokerage Genesis. Genesis creditors are looking at options to try to prevent the brokerage from falling into bankruptcy.

gold forecast

Robertson of Standard Chartered said that a surprising market scenario of gold rallying as cryptocurrencies decline could see the precious metal measure at $2,250 an ounce.

“Gold will benefit from cryptocurrency woes going forward, with the sudden downturn in confidence in the cryptocurrency ecosystem,” said Nicholas Vrabel, global head of institutional markets at ABC Refinery in Sydney.

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The cryptocurrency sector continues to shrink. For example, digital asset exchange Bybit plans to cut its workforce by 30%, the latest in a series of layoffs to hit the industry.

There could be more pain ahead: About 94% of respondents to Bloomberg’s MLIV Pulse survey believe more blowouts will follow FTX’s bankruptcy as years of easy credit give way to a tougher business and market environment.

Bitcoin at the moment is fairly stable. The largest virtual currency was up 1.8% on Monday and was trading at a three-week high of $17,340 as of 2:35pm in Tokyo. It also gained codes like Ether, Solana, and Polkadot.

For crypto market prices: CRYP; For the most important cryptocurrency news: TOP CRYPTO.

–Assisted by Sing Yee Ong.

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Dollar falls as easing of restrictions in China boosts risk sentiment By Reuters

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© Reuters. FILE PHOTO: One hundred US dollar banknotes are seen in this illustration taken in Seoul on February 7, 2011. REUTERS/Lee Jae-won/File Photo

SINGAPORE (Reuters) – The dollar fell broadly on Monday after a rough week, weakening below 7 yuan as sentiment towards riskier non-dollar assets improved after signs of China easing some coronavirus-related restrictions.

More Chinese cities, including financial hub Shanghai and Urumqi in the far west, announced easing coronavirus restrictions over the weekend as China tries to soften its stance on COVID-19 restrictions in the wake of unprecedented protests against the policy.

“They may seem like small steps, but nonetheless they are a strong sign that China is taking measured steps toward reopening,” said Christopher Wong, currency analyst at OCBC.

China is preparing to announce soon easing nationwide testing requirements, as well as allowing positive cases and close contacts to isolate at home under certain conditions, people familiar with the matter told Reuters last week.

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The dollar fell below 7.0 yuan in foreign trade, while it jumped about 1.4% to 6.9507 on Monday morning, the strongest level since Sept. 13.

The euro, which measures the currency against six major peers including the yen and the euro, fell 0.18% to 104.28, its lowest since June 28.

The index fell 1.4% last week, capping a 5% decline for November, its worst month since 2010, on mounting expectations that the Federal Reserve is ready to scale back interest rate hikes after four consecutive 75-bps. Points increase.

Investors’ focus will be on US consumer price inflation data due on December 13, a day before the Federal Reserve wraps up its two-day policy meeting.

The US central bank is expected to raise interest rates by an additional 50 basis points at the meeting. Fed fund futures traders are now pricing the Fed’s benchmark rate to a peak of 4.92% in May.

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OCBC’s Wong said some degree of caution is still warranted because the Fed is not done tightening. “They’re still tightening up, it’s just that it’s going to be in baby steps.”

Traders appeared to be looking beyond the stronger-than-expected US jobs report for November on Friday after some Federal Reserve speakers calmed market concerns.

“We’ve blown past the US payrolls with a temporary jolt to risk markets,” said Chris Weston, head of research at Pepperstone, noting that the data supports the “soft landing” argument and is unlikely to change the Fed’s course.

Meanwhile, the Japanese yen was down 0.04% against the dollar at 134.37 per dollar, after rising 3.5% last week, off October’s low of 151.94.

The euro rose 0.38% to $1.0578, after rising 1.3% last week. It had earlier touched its highest level in more than five months at $1.05835.

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The pound rose to $1.23450, the highest level since June 17, and was last trading at $1.2339, up 0.42%.

The Australian dollar rose 0.75% to $0.684, while it rose 0.31% to $0.643.

================================================== == ======

The currency bid prices are at 0520 GMT

Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid

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previous change

session

EUR/USD 1.0580 $1.0541 +0.37% -6.94% +1.0584 +1.0512

USD/JPY 134.3800 134.2950 +0.00% +16.75% +134.7600 +134.2800

EUR/JPY 142.18 141.53 +0.46% +9.10% +142.2200 +141.5700

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USD/CHF 0.9349 0.9368 -0.19% +2.51% +0.9393 +0.9344

GBP/USD 1.2337 1.2293 +0.37% -8.76% +1.2343 +1.2251

USD/CAD 1.3401 1.3474 -0.54% +5.99% +1.3473 +1.3386

AUD/USD 0.6841 0.6794 +0.63% -5.94% +0.6851 +0.6764

NZ 0.6429 0.6413 +0.27% -6.06% +0.6442 +0.6367

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locations in Tokyo

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Tokyo forex market information from Bank of Japan

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