Tuesday FX Interest Rate Monitor

Risk aversion took a step forward following analysis by Wall Street Journal staffers, claiming flaws in the methodology of the July stress-testing process across 91 European banks. The contention is that banks have understated the value of government paper they are holding, which underestimates maximum potential losses in the event that a government defaults. The story unleashed yesterday also claims that certain banks failed to include paper issued by specific nations, which might help explain why so many Eurozone analysts missed the mark at the time. Yields across the globe have claimed back much of last week’s losses as data warmed up especially in the world’s largest economy.

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Wednesday FX Interest Rate Monitor

Bonds have come back off the boil as investors try to figure out whether or not the European banking system might weigh any further on the global recovery following a recent poke at its methodology. Yields slumped on the news that Europe’s bankers might not have fully reported government debt on its books but as the shock wears off it seems that investors might be willing to return to business as usual. The lack of transparency in the reporting, even if were true, fails to answer the obvious question of whether or not the latest news increases the likelihood of a government default. It is hard to say at this point, however, that markets have brushed aside the report. However, firm action from the Bank of Canada quickly soured sentiment mid-morning reminding bond traders that recovery is out there – somewhere.

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Monday FX Interest Rate Monitor

Treasury market investors appear to be having second thoughts on Monday morning following a seesaw session on Friday that witnessed record lows for U.S. 10-year yields. Having reached 126-08 in the September contract (yield 2.53%) profit-taking and a siren voice offering some sage advice in the form of a 2% interest rate increase from a former IMF economist, has forged a downwards path for the contract to 125-10 this morning. Other global bond markets are little changed as some semblance of optimism returns in the form of rising stock markets around the world.

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Tuesday FX Interest Rate Monitor

Bond prices responded to flexing Asian equity markets on the prospect of a rethink by China on its restrictive policies now the pace of expansion has moderated. However, equity index futures buckled on disappointing earnings headlines from Goldman Sachs whose numbers look worse thanks to a recent SEC fine and British banking tax. Bonds have since regained their upward move as equity prices weaken while a sliver of optimism was to be found in a construction report reflecting an increase in the number of building permits.

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Wednesday FX Interest Rate Monitor

Not enough buyers turned up to a German bond auction today as investors feared an impending capital loss after the recent slump in yields drove borrowing costs to an all-time low. But global fixed income markets continue to push yields down during this summer lull, ever hopeful that Chairman of the Board Ben Bernanke might tip his hat in Washington to evidence lurking somewhere beneath an unturned rock indicative of an end to the current slowdown.

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Thursday FX Interest Rate Monitor

Chairman of the Board Ben Bernanke’s concerns expressed in Washington on Wednesday rocked investors’ nerves helping to send equity indices plunging and bond yields lunging. His warning that it might take “a significant amount of time” to restore the 8.5 million jobs lost throughout 2008 and 2009 were reinforced today by an unexpected uptick in a reading of firings. But beneath the surface the labor news isn’t as bleak as bears need to sink confidence and proving the patchy nature of the recovery is a slew of corporate earnings demanding of the Chairman, “what slowdown?”

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