The World Bank sold the equivalent of about $700 mln of a three-year of a multiple currency bond that duplicated the composition of the IMF’s Special Drawing Right or SDR. There has been much fanfare. It is the first SDR bond in more than 30 years according to reports.
The problem of negative returns on sovereign bonds may be spreading. U.S. Treasuries are seeing yields fall on all parts of the curve, with 10-year and 30-year yields reaching historical lows. The 10-year Treasury fell to 1.38% in early morning trading Tuesday, a historic low as fears about growing global uncertainty hit growth expectations both in America and globally. The 30-year Treasury fell to 2.15%, a 101 basis point decline from a year ago (10-year yields fell 100 basis points over the same period).
Until last September, the Federal Reserve seemed to play down the market-based measures of inflation expectations, preferring the surveys that showed views were anchored. At the September 2015 FOMC meeting where the Fed had been expected to tighten until the August turmoil, officials cited among other considerations, the decline in market-based measures of inflation expectations.
Over the next fortnight the major central banks, including the ECB, BOJ, Fed and BOE will hold policy-making meetings. Of the four, expectations are the highest for the ECB to ease policy.
John Cryan, the chief executive of Deutsche Bank, has described his bank as “rock solid”. This may be what you would expect to hear from the executive with his hand on the tiller – but it is a bit like a politician talking enthusiastically about their high moral standards. In other words, it can be cause for concern.
The Bank of Japan surprised investors by introducing negative rates last week. Leave aside the fact that the negative rates do not go into effect for more than another week, and even when in effect, will apply to a relatively small amount of deposits at the central bank. The important point is that it is another central bank to introduce negative rates.
The climate summit in Paris has shown that global big business is now also on board with the transition to a low-carbon economy.
However, the most promising instruments in finance for promoting green investing, particularly green bonds, have been around for almost a decade now, starting with the European Investment Bank (EIB) Climate Awareness Bond in 2007.
Why haven’t green bonds entered the mainstream of finance, and what is holding them back?
This Great Graphic was composed on Bloomberg. It shows two time series. The yellow line shows the premium the US pays over Germany for two-year money. The white line shows the premium the US pays over Japan for two-year money.
American banks are holding fewer bonds on fears that the market will continue to decline, while mortgage activity falls and retail sales decline.
