European government bonds are set to start this year supported by the resumption of the central bank’s asset-purchase program and a decline in sovereign issuance.
After a year in which the European Central Bank (ECB) attempted to bolster inflation through its 60 billion euro (US$65 billion) a month bond-buying plan, the first major economic report of this year is likely to show that consumer-price growth remains a fraction of the central bank’s goal.
Investor demand for bonds could also be underpinned by Germany paying around 23 billion euros of redemptions due tomorrow, the same day as ECB bond purchases, which were halted on Dec. 21 before the holiday period, resume.
The data, due on Tuesday, is expected to show annual inflation in the currency bloc accelerated to 0.4 percent last month, the median forecast of economists in a Bloomberg survey said.
While that is up from 0.2 percent in November, it is still short of the ECB’s desired rate of just under 2 percent. At their latest policy meeting on Dec. 3, officials cut the deposit rate to minus-0.3 percent and extended the central bank’s quantitative-easing plan by at least six months.
“Most European events will favor a bond-positive start to the year and we will probably get that,” Helsinki’s Nordea Bank AB chief strategist Jan Von Gerich said.
“The ECB in terms of further easing has very much left the door open and at the very least they will cut the deposit rate once again. If you look at the dynamics in terms of supply and demand, you have most countries seeing lower issuance and at the same time you have the ECB buying,” Von Gerich said.
Benchmark German 10-year bunds yielded 0.63 percent as of the 5pm London close on Wednesday last week, the final trading day last year. The price of the 1 percent security due in August 2025 was 103.45 percent of face value. The bund yield rose from 0.54 percent in December 2014. Last year it reached a record low of 0.049 percent in April and climbed to its peak of 1.06 percent two months later.
Italian 10-year bond yields ended the year at 1.60 percent, down from 1.88 percent at the end of 2014. They touched a record-low 1.031 percent in March, the month the ECB started its asset purchases. Similar-maturity Spanish yields closed last year at 1.77 percent, up from 1.61 percent in December 2014 and a record-low 1.048 percent in March.
Euro-area sovereign securities returned 1.70 percent last year, Bloomberg World Bond Indexes said, adding to a gain of 13 percent in 2014. They outperformed US peers, which made 0.7 percent last year and UK gilts, which earned 0.2 percent.
International sovereign-debt markets were dominated last year by the ECB’s unprecedented bond-purchase program and the US Federal Reserve’s decision to raise interest rates for the first time in almost a decade.
This year the possibility of a referendum on Britain’s EU membership is likely to capture investors’ attention, though the uncertainty around the vote might be a risk to UK assets.
The UK benchmark 10-year gilt yields climbed from a record low set in January last year. The Bank of England (BOE) held interest rates at an all-time low throughout the year despite signals at times that an increase was approaching sooner than the market was pricing. With UK economic growth slowing, markets have not fully priced a move by the BOE until the end of this year.
“Gilts have been a bit of a sideshow,” said Azim Meghji, the London-based head of UK fixed income at Santander Asset Management, which manages the equivalent of US$170 billion.
“The focus for most investors has been what the ECB are going to do and what the [US] Fed will do and those have been two competing themes throughout 2015, which has left gilts at the mercy of where the broad market for government bonds has gone,” Meghji said.
The benchmark 10-year gilt yielded 1.96 percent as of 1pm close on Friday in London. The yield dropped to a record-low 1.325 percent on Jan. 30, last year and peaked at 2.21 percent in June.
With UK inflation near zero and the outlook for international growth remaining shaky, BOE officials have less incentive to raise interest rates. Recent data showed wage growth, a key focus of deciding monetary policy, had slowed and so policymakers can remain cautious for the time being, Meghji said.
“After 2014 being a blockbuster year, 2015 being a mediocre year, I wouldn’t expect 2016 to be significantly different at this stage than the year we just had,” Meghji said.
TV and online retailer Momo.com Inc (富邦媒體) yesterday said it has set up a new logistics subsidiary, Fu Sheng Logistics Co (富昇物流), to oversee the company’s extensive shipping operations. Leveraging Momo’s 23 satellite warehouses and distribution centers nationwide, Fu Sheng will be in charge of executing the retailer’s same-day shipment plan for deliveries in Taipei, New Taipei City, Taoyuan, Taichung, Tainan and Kaohsiung, Momo said in a press release. Seeking to further shorten its supply chain, the company is to set up another seven satellite warehouses and distribution centers by the end of the year. “Fu Sheng has a fleet of 200 couriers
‘ACCORDING TO PLAN’: A company official said that it has set up production sites worldwide to provide services and that its Wisconsin project was going smoothly Hon Hai Precision Industry Co’s (鴻海精密) smart manufacturing center in Wisconsin would begin trial manufacturing in the middle of this year, the company said yesterday, adding that it plans to build a research institute to develop key technologies to support growth over the next five years. Hon Hai, known internationally as Foxconn Technology Group (富士康科技集團), said in an annual report submitted to the Taiwan Stock Exchange that its planned Foxconn Institute for Research in Science and Technology would conduct research into artificial intelligence, next-generation communications, quantum computing, cybersecurity and nano semiconductors in Taiwan. Hon Hai is to make products at the center
US-CHINA TENSIONS: The company said that it supplies self-designed chips to the Chinese company and, as such, is not affected by the latest US export restrictions Macronix International Co (旺宏電子) said it does not expect its shipments of memory chips to Huawei Technologies Co (華為) to be affected by the latest US export restrictions on the Chinese tech giant. “As long as the company [Huawei] places orders, we will ship [chips], unless the [Taiwanese] government restricts all Taiwanese companies from shipping” to Huawei, Macronix chairman and chief executive officer Miin Wu (吳敏求) said on Monday in Hsinchu. The US Department of Commerce on Friday took a further step to block chip supplies from non-US companies to Huawei by requiring foreign semiconductor makers to get US government permission before
E Ink Holdings Inc (元太科技), the world’s sole supplier of e-paper displays for e-readers and shelf labels, posted its best quarterly net profit for the first quarter in nine years amid increased demand during a traditionally slow season. Net profit soared 80 percent to NT$787 million (US$26.23 million) in the quarter ended March 31, compared with NT$438 million a year earlier. That translated into earnings per share of NT$0.69, up from NT$0.39. E Ink posted lower royalty income of NT$371.23 million last quarter from NT$448.74 million a year earlier, a company financial statement showed. E Ink said that it expects royalty income to