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Negative-yielding debt was eliminated by the Bank of Japan’s policy shift

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The global stock of negative-yielding bonds dwindled to zero after an unexpected policy shift by the Bank of Japan last month undermined the last bastion of sub-zero yields.

Negative yields — which occur when bond prices rise so high that buyers who hold them to maturity are guaranteed to lose their money — have flooded a wide range of global fixed income markets in recent years, as the market value of debt trading with yields below zero has skyrocketed. above $18 trillion in late 2020 after central banks cut interest rates and launched massive bond-buying programs in the wake of the COVID-19 pandemic.

But last year’s abrupt end to the era of easy monetary policy sparked a historic bond sell-off that quickly shrank the pile, as central banks in the eurozone and Switzerland dropped the curtain on years of turmoil. negative interest rates.

That left Japan, where the Bank of Japan’s key interest rate remains at -0.1 percent, as the last bond market to feature sub-zero yields, meaning investors are in fact willing to push the government to borrow. Buyers were prepared for a negative yield either because regulations forced them to hold a certain amount of safer government debt, or because bonds remained attractive compared to central banks’ lower interest rates.

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However, last month’s move by Bank of Japan Easing its policy of pegging long-term yields near zero has sent yields soaring in the massive Japanese government bond market and fueled speculation that Japan’s era of negative interest rates may soon be coming to an end.

The yield on two-year Japanese government bonds rose to 0.03 per cent from -0.02 per cent in mid-December.

A Bloomberg index that tracks the market value of negative-yielding debt around the world fell to zero for the first time since 2010 this week. Some short-term Japanese government debt still trades at yields marginally below zero, but debt with a maturity of less than one year is not included in the index.

At its peak, negative yields became a symbol of the extraordinary measures central bankers took to stimulate their economies in the wake of the global financial crisis and the Covid outbreak. Initially considered as their curiosity by investors, the phenomenon has spread to more than a quarter of global fixed income, consisting largely of eurozone debt and Japanese sovereign debt, but also including some corporate bonds and short-term government borrowing in the US and UK.

While sub-zero nominal yields have vanished, at least for the time being, high inflation means that bond investors still face negative real yields in many markets.

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Pakistan Seeks Help Reconstructing $16 Billion From Floods At UN Conference By Reuters

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© Reuters. FILE PHOTO: A displaced girl holds a water bottle she has filled from floodwaters stranding them, while her family takes refuge in a camp in Sehwan, Pakistan September 30, 2022. REUTERS/Akhtar Soomro/File Photo

Written by Emma Farge and Gabrielle Tetro-Farber

GENEVA (Reuters) – Pakistan and the United Nations will hold a major conference in Geneva on Monday aimed at galvanizing support for the country’s rebuilding after devastating floods, in what is expected to be a major test case for who pays for climate disasters.

Record monsoon rains and melting glaciers last September displaced about 8 million people and killed at least 1,700 in a disaster blamed on climate change.

Most of the waters have now receded, but the reconstruction work, estimated at about $16.3 billion, to rebuild millions of homes and thousands of kilometers of roads and railways is just beginning, and millions more may slip into poverty.

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Islamabad, whose delegation is headed by Prime Minister Shehbaz Sharif, will present a “framework” for recovery at the conference at which UN Secretary-General Antonio Guterres and French President Emmanuel Macron are scheduled to speak.

Guterres, who visited Pakistan last September, had described the devastation in the country as a “climatic massacre”.

“This is a pivotal moment for the international community to stand with Pakistan and commit to a resilient and inclusive recovery from these devastating floods,” said Knut Ostby, Pakistan Representative for UNDP in Pakistan.

Additional financing is critical for Pakistan amid growing concerns about its ability to pay for imports such as energy and food and to meet sovereign debt obligations abroad.

However, it is not at all clear where the reconstruction funds will come from, particularly given the difficulties of raising funds for the emergency humanitarian phase of the response which is about half funded, according to UN data.

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At the COP27 meeting in Egypt in November, Pakistan was at the forefront of efforts that led to the creation of a “loss and damage” fund to cover climate-related devastation for countries that contribute less to global warming than rich nations.

However, it is not yet known if Pakistan, which has an economy of $350 billion, will be eligible to benefit from this future financing.

Organizers say about 250 people are expected to attend the event, including high-ranking government officials, private donors and international financial institutions.

Khalil Hashmi, Pakistan’s ambassador to the United Nations in Geneva, said Islamabad was willing to pay about half of the bill but hoped to get donor support for the rest. “We will work to mobilize international support through various means,” he said. “We look forward to working with our partners.”

An International Monetary Fund delegation will meet Pakistan’s finance minister on the sidelines of the conference, a spokesman for the bank said on Sunday, as Pakistan struggles to restart its bailout programme.

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The International Monetary Fund has not yet approved the release of $1.1 billion that was due to be disbursed in November last year, leaving Pakistan with only enough foreign exchange reserves to cover one month’s imports.

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Will the data reveal that US inflation has cooled again?

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Did US consumer price growth slow again in December?

Investors and economists are betting that the Fed’s aggressive monetary campaign will cause consumer price growth to slow again in December.

On Thursday, the Bureau of Labor Statistics will release consumer price index data for the previous month. Market participants surveyed by Refinitiv expected prices to have risen 6.6 percent year-on-year in December, down from a 7.1 percent increase in November. This marks the slowest pace since October 2021. Consumer prices are expected to remain flat on a monthly basis compared to an increase of 0.1 percent in November.

John Hill, a strategist at Barclays, said the decline is expected to be partly driven by lower energy prices, which included gasoline, which fell 13 percent in December.

The core CPI, which excludes the volatile food and energy components, is expected to rise 5.7 percent year-on-year, up from 6 percent in November.

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These moves will come at the end of the year in which the Federal Reserve raised interest rates from near zero to a range of 4.25 to 4.5 percent. The effects of the historical pace of increases have been rather sluggish: inflation peaked in June, but continued to rise above 8 percent through September.

December inflation data will be an important piece of information for the Fed’s two-day meeting starting on January 31 and could help determine whether the central bank raises interest rates by 0.5 percentage point, matching last month’s increase, or slowing the pace of increases further. . Kate Duguid

What will the industrial production data reveal about the manufacturing sector in Europe?

The past year was difficult for many European manufacturers and conditions are unlikely to improve much in November, when industrial production was expected to suffer its second consecutive monthly decline.

The energy crisis triggered by Russia’s invasion of Ukraine, combined with continued disruption to global supply chains and weak economic growth, has made 2022 a difficult year for many industrial clusters in Europe.

Economists polled by Reuters expect industrial production in the euro zone to have fallen 0.2 percent when those figures are released on Friday. Earlier in the week, national figures for Germany, France and Italy — the bloc’s three largest economies — were also expected to reveal slight contractions in industrial production.

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The gloomy outlook for the German industrial sector was underlined last week, when factory orders data for November revealed a much larger-than-expected decline of 5.3 percent from the previous month.

However, economists believe that it will take some time before a sharp drop in demand affects production due to the large backlog of orders since the outbreak of the coronavirus pandemic in 2020. Underlining this, sales volumes in German manufacturing remained high in November, rising 2.1 per cent.

“Weak demand is likely to have a weak effect on production,” said Ralf Solven, an economist at Germany’s Commerzbank. “After all, most industrial companies have a large number of orders backlog, which they can now solve.” Martin Arnold

Did the British economy shrink more?

The British economy is expected to continue to struggle at the end of last year under the pressure of high inflation and rising borrowing costs.

Economists polled by Reuters expected the UK’s gross domestic product to have fallen 0.3 percent between October and November, when the data is released on Friday.

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Sandra Horsfield, an economist at Investec, noted that the British economy has been on a downward trend since May 2022, when inflation began to rise. The government provided aid to households and businesses facing a cost-of-living crisis, which may have boosted the economy in November.

A reversal of the National Insurance hike that took effect in April 2022 from November onward, which left after-tax paychecks somewhat higher than they were in October, should also support consumers’ ability to spend. Moreover, power generation appears to have rebounded somewhat after weakness in October, as higher-than-normal wind speeds should have fueled industrial production.

But Horsfield said these factors and other government aid absorbed only part of the blow.

Add to that the constraining effect on higher interest rate activity, and the likelihood is that GDP will trend lower for some time – particularly as it spreads [industrial] “The strikes cause some additional disruption,” Horsfield said.

The economy contracted in the third quarter of 2022 and the November data will provide more information about the final quarter. Many economists expect the UK to have already entered a recession that will last for most of 2023.

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“The bright side of this particular cloud is that we expect it to help dampen price pressures,” Horsfield said. Valentina Romy

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Economy, row over energy and drugs loom at North American summit by Reuters

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© Reuters. FILE PHOTO: Supporters of Mexican President Andres Manuel Lopez Obrador gather before his arrival at the White House, for his meeting with US President Joe Biden in Washington, US November 18, 2021. REUTERS/Kevin LaMarque.

By Dave Graham

MEXICO CITY (Reuters) – North American leaders aim to give a new impetus to strengthening economic ties at a meeting this week, even as a continuing row over Mexico’s energy policies distracts from cooperation on other issues such as immigration.

Mexican President Andres Manuel Lopez Obrador will host his US counterpart Joe Biden and Canadian Prime Minister Justin Trudeau for talks in Mexico City from Monday to Wednesday, the first summit between the three countries since late 2021.

“A meeting like this is so we can continue to move forward with economic integration,” Lopez Obrador said this week.

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However, Mexico remains mired in an energy dispute with the United States and Canada, which argue their companies have been hurt by Lopez Obrador’s campaign to give market control to cash-strapped state energy firms.

López Obrador, a militant leftist, says his policy is a matter of national sovereignty, on the grounds that previous governments have skewed the energy market in favor of private interests.

Washington and Ottawa believe his actions violate the United States-Mexico-Canada Trade Agreement (USMCA), and have initiated dispute settlement proceedings against Mexico, souring the mood for cooperation on jobs and investment.

Trudeau told Reuters on Friday that he will make the case that resolving the energy dispute will help bring more foreign investment into Mexico, and he is confident progress will be made.

Others argue that the time for negotiation is over.

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Aindriu Colgan, director of tax and trade policy at the American Petroleum Institute — whose members include ExxonMobil (NYSE:) and chevron (NYSE: 🙂 – said it was time to contact the Dispute Commission because “Mexico is flagrantly violating the USMCA.”

Ahead of the summit, officials publicly stressed North America’s shared economic interests, while privately downplaying prospects for a major breakthrough in the energy dispute.

“They will do everything they can to make it look like a happy rally,” said Andres Rosenthal, Mexico’s former deputy foreign minister. “As long as López Obrador keeps immigrants out of the border area, Biden will be happy.”

SNUBS, fentanyl, migration

Since the COVID-19 pandemic rippled through supply chains, policymakers have stepped up calls for companies to move their businesses out of Asia to make the region’s economy more resilient.

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As part of that campaign, López Obrador, who in June declined Biden’s invitation to the Summit of the Americas in Los Angeles in protest of his exclusion of the leaders of Cuba, Venezuela and Nicaragua, wants to discuss his plan to boost solar power in the North. Mexico and securing American financial support for it.

Biden aides say they expect a positive tone at the meeting after a new immigration plan was announced this week, and Mexico discovered a high-profile cartel boss.

Ovidio Guzmán, son of imprisoned King Joaquín “El Chapo” Guzmán, is the leader of the Sinaloa Cartel, which is blamed for aiding the fatal overdose of the synthetic opioid fentanyl in the United States.

The US government said stemming the flow of fentanyl would be an important part of the talks on combating the drug cartels. Supply chains, climate change and migration will also be discussed.

A US official, who spoke on condition of anonymity, said any tensions over the snub of Lopez Obrador in June had dissipated and the two presidents were better positioned to work together.

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Mexico’s government has repeatedly urged the United States to allocate funds to Central America and southern Mexico to boost development and stop migrants’ journey north from a region that has long been one of the poorest on the continent.

It also urged Washington to make it easier for immigrants to find jobs in the United States. A Mexican official said the deal unveiled Thursday to expand cross-border expulsions will do so because of a trade-off it includes to make it easier for migrants to enter by air.

Mexico also recently took issue with the United States with a plan to ban imports of genetically modified corn. He said that although López Obrador’s government had agreed to delay the ban until 2025, the issue would be discussed.

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