Bond buyers abound
A swirling attitude to risk saw the Swiss franc replace the yen as the front-runner on Monday, with the Japanese currency in second place. The Northern Scandinavian crowns hauled their way up from the back of the field into joint third place. Somewhere in the middle, sterling was just about unchanged on average.
The main topic of interest was bonds, especially US Treasury bonds. With the $1.9 trillion Covid recovery package now moving ahead, the administration has turned its attention to other types of stimulus. It is said to be considering proposals for infrastructure, climate and jobs that could cost between $3 trillion and $4 trillion. Money like that will not be found down the back of the sofa, it will have to be borrowed, and to do that the Treasury will have to issue debt instruments.
It might be thought that investors would flinch at the prospect of such a pile of debt coming down the line, but they seem to be taking it in their stride. The Federal Reserve is, after all, keeping interest rates ultra-low, and investors have to put their cash somewhere. They will be shown sizeable investment opportunities by the Treasury this week, with auctions for $183 billion of two-, five- and seven-year notes. The US dollar is not in the least worried by the growing debt mountain. It was comfortably in the front half of the field on Monday.
It is the first anniversary of Britain’s initial Covid lockdown. Unlike the United States, the UK will not celebrate with an issue of Treasury paper, but two of the Bank of England’s leading lights will perhaps find themselves in the papers after appearances today.
Sterling has done quite well during the lockdowns, with an average gain of 2.6%. The top performers over the last 12 months were the NOK and AUD, which strengthened by 14% and 11% against the other majors. The biggest losers were the USD, down 18%, and the JPY with a loss of 17%.
There was not much sign of currency leadership on Monday from speakers at the Bank of International Settlements’ Innovation Summit. Federal Reserve Chairman Jerome Powell was vaguely positive about the US economy and Bundesbank President Jens Weidmann spoke of flexibility in the European Central Bank’s stimulus programme.
Chairman Powell might have more impact when he appears in front of the House Committee on Finance Services today, not with his speech, which has already been published, but with his answers in the Q&A. The same goes for Treasury Secretary Janet Yellen.
The Bank of England’s Jon Cunliffe and Andrew Bailey will also be making appearances today, as will the Federal Reserve’s James Bullard, Raphael Bostic, Lael Brainard and John Williams, and Bank of Canada Deputy Governor, Toni Gravelle.
The pick of the day’s data have already passed by. UK employment figures showed small increases in the number of employees, although, since February 2020 their number has fallen by 693k. The rate of unemployment fell to 5%. Wage growth remained strong at 4.8%, mainly because of the loss of more lowly-paid jobs and the payment of deferred bonuses.