China’s investment landscape has shifted and the ripples are spreading far and wide
Abenomics might underpin a weak yen but that doesn’t preclude a stronger one
As investors seek to puzzle out which direction asset markets will take after a fractious start to 2016, perhaps it is still the case that “no-one who is really involved in the landscape ever sees the landscape”, as British author George Orwell once wrote.
Taking a step back might be the best way to understand the true meaning of the picture.
For example, while traders and Federal Reserve forecasts both see further US rate increases in 2016, the current yields on five- and 10-year US Treasuries have fallen back as money has flooded into the perceived safety of America’s government bond market.
Conventional logic would portray that as a flight to safety amid equity market volatility around the world. Even if there is an expectation of further increases in US rates this year, investors might plump for US Treasuries in the short term as a desire to guarantee the return of capital sometimes trumps the urge to maximise the return on it.
Of course, for those, such as Global Macro Investor’s Raoul Pal, who see the United States at high risk of entering recession, there is real value in buying US Treasuries even though the mainstream view remains for higher US interest rates and thus lower prices for the bonds themselves.
“I think the big surprise this year will be the strength of the [US] bond market ... 10-years are likely to go to 1.2 per cent,” Pal tweeted on January 4.