The bond market rears its ugly head once again..
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| You may be wondering today 'what the hell does Japan have to do with the GBP v EUR going down?', here's why..
Japanese government bond yields have soared to record highs today (usually very stable and low) after Prime Minister Takaichi announced a snap election on February 8th. She promises to lower taxes and provide more spending (a Liz Truss moment) if she is successful.
Japanese investors have historically bought up government debt in foreign markets due to higher returns (primarily the US which it has been the highest holder of US debt for some time now). But now with returns at 4% and climbing back in Japan, there will be potentially a gigantic shift out of US debt and into Japanese debt instead.
What does this mean exactly?
The UK and US rely heavily on foreign investment (in particular the former) to mainly pay off government debt. If investors see better returns elsewhere, the governments will have to raise yield prices to attract investment back into the coffers which increases government debt further down the line and naturally causes all kinds of serious implications.
Financial markets are forward thinking, traders and investors are playing the long game, not what is happening now, but what could happen in the future.
Today, UK bonds have spiked and global stocks are heavily in the red. This has seen the USD as the biggest loser (Greenland effect too) and GBP not far behind against the rest of the G10.
£-€ trades at a 2-week low (not of concern yet) and £-$ comes out of a 1-month low.
The UK jobs data released earlier this morning for December offered no real surprises and has had no baring on today's movements. Job losses extended but are contained, the unemployment rate held steady at 5.1% and average earnings remain sticky and high.
Finally, the 'Greenland trade' extends into a second day with President Trump showing no signs of backing down. As we said yesterday, this variable is $ negative, € positive the longer it goes on or becomes official that new US tariffs are inbound. Chaos reigns.. |
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