(July 15, 2018) Weekly Topics of Global Economy

[kyonmanchung]

(July 15, 2018) Weekly Topics of Global Economy

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지난 주말 미국 국채시장에서 장단기 국채간의 수익률spread (Treasury yield curve spread)가 11년내 최저인 25bp로 축소 -> 조만간 장단기 금리 역전 -> 경제침체 가능성을 경고하고 있습니다.

세계적 국부펀드인 싱가포르의 GIC, TEMASEK, China Investment Corp 등이 세계무역분쟁, 금리 인상 및 높아진 valuation을 이유로 선진국 시장에 대한 exposer를 축소하고 현금 보유를 늘렸습니다.

1. The bond market is sounding an alarm on the economy as 'yield curve' spread hits narrowest in 11 years on Friday, CNBC

- 미국 국채시장에서 장단기 국채수익률spread (Treasury yield curve spread)가 11년내 최저로 축소 되어, 경제침체 가능성을 경고하고 있습니다.

최근 단기국채 수익률이 빠르게 상승, 지난 13일(금) 2년만기(단기) 국채수익률(2.57%)과 10년만기(장기) 국채수익률 간의 spread가 겨우 25.5bp로 11년내 최저였음. 장기와 단기 수익률을 연결한 yield curve가 거의 수평화(flattering) 되었는바, 머지 않아 소위 “장단기금리 역전 현상”(inverted yield curve)이 초래 될 수 있게 된 것.

과거 장단기 금리가 역전되었을 때 거의 예외없이 조만간(최단 수개월내-최장2년내) recession이 찾아 왔다는 점, 그리고 Trump발 세계 보호무역주의가 확산과 Fed발 금리인상 기조가 예정되어 있는 점 등은 각종 경제지표의 회복에도 불구 global economic recession 가능성을 경고하는 것임.

현재 장단기 채권수익률 곡선의 flattering상태가 언제 reversing(단기금리>장기금리)할 지는 예측하기 어렵지만, 좀더 천천히 진전되기를 기대합니다.

다행히 과거와 달리 현재 금리는 매우 낮은 상태인 점, 미국의 2분기 경제성장률이 3%를 상회할 것으로 예상(세금감면 및 재정확대 효과)되고 있는 점, Fed가 기준금리를 소폭 올렸지만 아직 통화긴축(tightening)은 아니라는 점 등은 경기침체 우려를 완화하는 것임 ( ->soft landing? )  

2. Sovereign investors sound market alarm, Reuters, Breakingviews - Reuters

- 세계적 국부펀드인 싱가포르의 GIC가 세계무역분쟁 가열, 금리 인상 및 높아진 valuation을 이유로 선진국 시장에 대한 exposer를 축소하고 현금 보유를 늘렸습니다. GIC는 $390bn규모의 자산을 운용하는데, 지난 20년간 연평균 수익률이 3.5%였으며, 작년에는 이보다 높은 3.7%의 수익률을 달성하였다고 하는군요. GIC는 재작년 3월 자산의 27%를 선진국 증권에 투자하였다가, 금년 3월에는 23%로 낮췄으며 현금 비중은 37%에 달한다고 밝힘

한편 싱가포르의 또 다른 국부펀드인 Temasek($226bn 자산운용, 주식투자가 많음), 그리고 중국의 국부펀드인 ‘China Investment Corp’도 최근 선진국 시장에 대한 경고 메시지를 보냈음.

기사 말미에 국부펀드가 투자에 겁을 먹는다면, 일반투자자도 쉬는 것이 좋다는 말이 와 닿네요(If the sovereign funds are cowering, that should be enough to make ordinary investors pause, too) 

정견만 드림

<생각> Trump가 NATO allies들과 좌충우돌한 데 이어, 중국 수입품($200bn)에 대한 10% 추가 관세로 세계무역분쟁을 확대하고, 영국으로 가서 golf하면서 곳곳에서 비난을 받네요. 러시아 정보원 11명에 대한 기소로 Putin과의 협상도 애매한 꼴 ->세계 최고 미국 대통령이 Bully로 불리다니! 세상의 반대 여론이 적폐로 보일까?

1. The bond market is sounding an alarm on the economy as 'yield curve' spread hits narrowest in 11 years on Friday, CNBC

Patti Domm | @pattidomm

Published 15 Hours Ago Updated 10 Hours Ago

• The Treasury yield curve gets flatter every day, and some strategists expect it to invert, meaning short end yields, like that on the 2-year note, could rise above longer duration yields, like the 10-year.
• A flat curve is the sign of possible economic weakness, but an inverted curve signals recession and the point where the curve would invert was just 25 basis points away Friday, the lowest in 11 years.
• Fed Chairman Jerome Powell could be asked about the curve next week when he testifies before Congress, and one strategist says: "the bond market is sounding the alarm, but the Fed is not going to be running to what it perceives to be a false alarm initially, even if things go up in smoke."

The U.S. economy is more vibrant than it has been in years, yet the bond market insists a recession could be on the horizon.

Some market pros say that warning from the Treasury yield curve, which has long been viewed as reliable, is not as relevant as it once was because of the long years of central bank easing that has depressed interest rates and turned debt markets into far more placid arenas.

The curve has been getting flatter by the day — meaning short-end interest rates are rising faster than long-term rates, and they are growing closer together. A flattening curve is a warning about economic weakness ahead, but should the curve invert— where the short end yield, like the 2-year, is actually higher than the 10-year—that would be viewed as a very solid recession warning.

On Friday, the gap between the 2-year yield and 10-year yield narrowed to just 25.5 basis points, a new 11-year low.

“The bond market is telling us the [economic recovery] is going to end soon, so let’s price it in with certainty,” said George Goncalves, head of U.S. fixed income rate strategy at Nomura. “They might be right, but they’re too early to call the end of the business cycle. It’s more the fact that it’s flattened so low, and it’s that people are dismissive of this economic recovery…If you look at the facts, why are people jumping on this ‘recession yield curve’ bandwagon when they haven’t given the U.S. economy a chance to see how much it can run? It could show up two years later. Why price it in with such certainty?”

However, many in the markets are taking the message seriously. Joseph LaVorgna, Natixis chief economist Americas, said the flattening curve is sending a warning, and many investors will see it that way. The financial sector is among the first areas to be pinched when the curve inverts.

“In general terms, if your cost of funds is 3 percent, and the return on your lendable funds is 2.5 percent, you’re not going to make money. You’re going to lose money. What happens is when the curve flattens and then inverts, you disintermediate the financial system…which means people are going to borrow and lend less,” he said.

Goncalves said some banks would start to feel the pinch, but in the two years before the financial crisis, after the curve inverted, they were still making money. “During that time, there was a lot of creative financing that was happening. That ended up causing other issues but banks were profitable during that time period,” he said.

The inversion, or the flipping, of the yield curve has certainly preceded recessions, but the timing of the onset has not been very consistent and has been as quick as a few months or as long as two years.

“The time frame between inversion and recession can be quite extended. The economy can stay in positive territory, and the markets as well,” said Leo Grohowiski, CIO at BNY Mellon Wealth Management. The time between the curve inverting and recession has varied dramatically to as little as a few months to as much as two years.

Grohowski and others stress that this cycle may be very different, particularly given the actions of the Federal Reserve and other central banks since the financial crisis. The long end of the curve, for instance, has been artificially depressed by global rates, with German 10-year bunds yielding just 0.34 percent.

"It seems like every day it continues to flatten. it remains to be seen whether this a recession signal but I think it is a signal that the economy is going to soften," said Peter Boockvar, chief investment officer at Bleakley Financial Group. "Not every flattening yield curve led to a recession. To me, there's no mystery over the yield curve flattening. The rate hikes eventually lead to an economic slowdown. Of the 13 rate hike cycles since World War II, 10 put us into a recession. We've only had three soft landings."

Certainly, Fed Chairman Jerome Powell will be asked about the curve when he testifies before Congress next week. The Fed is expected to raise interest rates two more times this year and three times next year. Analysts expect the Fed to stick to its hiking plans despite the curve.

“What’s going to be interesting to see is if Powell says 'we’re going to keep doing this,'” said Goncalves. “If it inverts the question everyone is going to be asking is when are they going to quit? Are all yield curves the same? they’re kind of not. Every regime is different than the other. In 2,000 we had the dotcom bubble and a government surplus. In 2006, when it crossed over, people were getting nervous already about housing in late 2005/2006. But what’s different back then was rates were much higher than they are now, and they did not just come off a period of massive QE. The rates were at artificial levels anyway. We’re still lower than we should be based on the kind of growth numbers we’re putting up.”

The economy in the second quarter is expected to have grown just under 4 percent, and is expected to remain strong through the end of the year with forecasts for the third and fourth quarter above 3 percent. The economy is being helped by tax law changes and fiscal stimulus but the bond market also worries that trade wars could lead to a slowdown and that has helped depress the longer end yields.

"Inverted curves have always been lurking at the scene of the crime when there's a recession. It's more of a coincident indicator than a causal factor," said Jim Caron, fixed income portfolio manager and managing director at Morgan Stanley Investment Management.

Caron said this time the yield curve could be signaling the extreme policies the Federal Reserve undertook to drag the economy out of the financial crisis, and while the Fed is raising rates it is not yet "tightening."

"One thing we have to reconcile is what's unique about this environment is we just went through a long period of QE [quantitative easing] to keep rates lower than normally would be the case. Most estimates for QE would argue the curve is probably on the order of about 40 to 50 basis points flatter than it normally would be," he said. "The flatness of the yield curve is instead a weaker signal about a recession than it has been in the past because of all these QE factors

Many strategists say it is simply the Fed’s rate hiking cycle flattening the curve, while inflation is not picking up that much, and there’s fear the economy may ultimately not prove strong enough to withstand all the interest rate hikes it plans. Those arguments are used to explain why the 10-year yield is not much higher than 2.84 percent, and have also led some to believe the Fed will stop hiking if it looks like the curve will invert.

Source: Wells Fargo

Source: Wells Fargo

At the same time, the 2-year, which hit 2.57 percent Friday, is rising as the Federal Reserve looks set to move forward with interest rates hikes. Besides super low global rates, the 10-year reflects the fact that the Fed still has a huge balance sheet although it is gradually shrinking it.

“i think some of the folks out there are definitely thinking the Fed will do no more than one or two more hikes, and then stop. There’s going to be disappointment. That’s not the signal the Fed is sending. I’m inclined to believe the Fed .If it does that, it will keep pressure on the curve to flatten, but probably not much more,” said Michael Schumacher, director of rate strategy at Wells Fargo.

Goncalves said the Fed will keep going with hikes. "The Fed's going to go through with it anyway. The hiked through an equity meltdown in 2000. The bond market is sounding the alarm, but the Fed is not going to be running to what it perceives to be a false alarm initially, even if things go up in smoke," he said.

Schumacher said he doubts the yield curve is a good forecaster for the economy, and it will not be until the Fed whittles down its bond portfolio. He said in the years between 1988 to 2008, when the 2-year and 10-year yields inverted, it generally led recession by 24 months.

Schumacher said there is an event that could send those back end yields higher—the Treasury will announce its refunding needs on Aug. 1, and that could be an announcement that reveals more longer term debt issuance, which could send rates higher. “It really boils down to this mismatch between supply and demand on the back end of the curve,” said Schumacher.

2. Sovereign investors sound market alarm, Reuters, Breakingviews - Reuters

Clara Ferreira-Marques

July 13, 2018 / 11:37 AM / a day ago

LONDON (Reuters Breakingviews) - Sovereign wealth investors are sounding the alarm. Singapore’s GIC said on Friday it had reduced its exposure to developed markets and was holding more cash, as trade ructions, tighter interest rates and stretched valuations give it pause. Compatriot Temasek and China Investment Corp have also struck notes of caution in recent days. The message is clear: modest returns are on the horizon. 

GIC, which manages $390 billion of assets according to the Sovereign Wealth Fund Institute, is not presenting a cheery picture. Stripping out inflation, its 20-year annualised real return was 3.4 percent, compared to a rolling return of 3.7 percent last year. That’s partly because lucrative investments made during the early tech bubble years are falling out of the 20-year window, but weaker down years remain. 

Inflation doesn’t make things look any better. Over 10 years and five years – though not 20 years – GIC underperformed its reference portfolio, which comprises 65 percent global equities and 35 percent global bonds. Conservative returns are driven in part by the fund’s move away from market turbulence: GIC’s volatility was lower over all three periods. 

The tone struck on Friday suggests more, not less, of that is coming. Indeed, GIC’s allocation to developed-market equities has reduced to 23 percent for the year to March, compared to 27 percent a year earlier. Cash stood at 37 percent, compared to 35 percent. The only other increase in allocations was to private equity.

Of course, GIC is still investing. It has become a more visible presence in unlisted tech, for example in Chinese delivery-to-coupons giant Meituan Dianping when it raised cash in October at a $30 billion valuation, and more often alongside Temasek. The pre-IPO investments made have been largely modest in size, though. 

Still, warnings of overstretched valuations and trade-related volatility were also heard from elsewhere. Even equity-focused Temasek, which reported a portfolio at a record S$308 billion ($226 billion) in part thanks to better performance from Singaporean banks like DBS, said it sees risks building and warned that it would pace its investment. 

If the sovereign funds are cowering, that should be enough to make ordinary investors pause, too. 

[도드람]

눈 다 나았소? 세계경제가 어찌 될가 걱정이 많습니다
농장을 하는 사람 까지 세계 경제에 대한 걱정이 생기네요
당장 미얀마서도 수입 하는 대두박 가격에 신경이 쓰이고 중국이 미얀마에서 사료 원자재를 수입 하면 곡물 값이
치솟을 것도 신경 쓰이고 중국이 베트남에서 돼지 고기 수입 중지 하면 베트남 태국 모두 돼지값 떨어지니....ㅉㅉㅉ

[모러바(volt)]

눈이 괜찮으시지요? 세계경제에 깜깜이로 지내다가 한없이 반갑기는 합니다만 눈이 다시 않좋아지면 더 걱정 됩니다.선생님의 건강을 기원 하면서 모처럼 정보 많이 얻어 갑니다.