The European Central Bank is proposing bond purchases of roughly €50 billion ($58 billion) per month for a minimum of one year, according to according to two euro-area central-bank officials.
The ECB’s executive board met Tuesday in Frankfurt to decide on the proposal, which will form the basis of deliberations by the entire 25-member governing council on Thursday. The final number and details could change after the full board weighs in on the plan.
If true the board’s proposal indicates that the ECB could move more aggressively than markets have been expecting. Forecasts among analysts have recently centered on a figure of around €500 billion or higher for a quantitative-easing program, but the executive board’s proposal suggests that bond purchases could amount to at least €600 billion.
With more central banks cutting interest rates or embarking on unconventional stimulus measures, it makes it harder for the U.S. Federal Reserve to normalize domestic rates. If the Fed were to raise rates and cause a further divergence in U.S. rates with the rest of the world, it might end up hurting the U.S. economy, analysts said.
“Any possible Fed hike might be pushed back now. People are throwing in the towel about a mid-year liftoff,” said George Goncalves, head of U.S. rates strategy at Nomura Securities
International in New York.
Following this mornings news, the yield curve between five-year notes and 30-year bonds widened to 110 basis points from 109 basis points on Tuesday. The 30-year bond is now off 1 point in price, with the yield rising to 2.44 percent.
Todays Other Top Stories
Learn Bonds: – Understanding the implications of lower oil prices. – For the average American, oil under $50 a barrel represents a tax cut. For those with lengthy commutes or typically rack up high miles on the open road, it has become considerably less painful to fill up at the gas station. This represents more disposable income that can be distributed in other places, saved in the bank, or invested in the securities markets. But its not all good news.
Intelligent Investing: – 5 Reasons to own muni bonds in 2015. – After a robust performance by municipal bonds in 2014 (see chart below), what should investors watch for in the year ahead? The MacKay Municipal Managers (MMM) team has published its five key insights for 2015. The overall conclusion is that the team sees attractive opportunities in certain segments of the market and believes that positive returns are best achieved through active management.
Ashburn Daily: – Short interest of Pimco municipal income fund drops by -33.8%. – Pimco Municipal Income Fund stated loss of 18,501 shares or 33.8% in the short interest. The short interest registered from 54,676 on December 15,2014 to 36,175 on December 31,2014. In terms of floated shares, the shorted positions stood at 0.1%. The stock has been averaging 51,414 shares daily in trading and would need 1 days to cover the shorts.
ETF Trends: – Investors keep pouring into muni ETFs. – Fixed income exchange traded funds are coming off a record year of asset gathering that saw two bond funds rank among the top 10 ETFs for added assets. To start 2015, municipal bond funds are keeping the torch burning for bond ETFs.
Bloomberg: – Abbott takes reins in Texas as crude stalks economy. – Greg Abbott, Texas’s first new governor in 14 years, takes over as an oil boom that helped stoke the economy and tax collections shows signs of fading.
LPL Financial: – Taking a page from the Fed. – The ECB is widely expected to announce a Fed-style outright government bond purchase program this week. A large and bold plan may arrest the rise in global government bond prices, but anything else may reinforce the record low-yield environment.
Bloomberg: – Even negative bond yields appeal as ECB wins game. – Global investors are finding a way to make money in Japan’s bond market, where yields are negative for maturities as long as five years. That’s largely thanks to European interest rates that are even lower.
WSJ: – U.S. Government bonds rise as crude-oil prices fall 4%. – (Subscription) Treasury bonds strengthened on Tuesday, with the yield on the 30-year bond falling to a record low, as a selloff in crude-oil prices stoked demand for haven assets.
Market Realist: – Treasury yields continued to move downhill. – Treasury yields continued their downward trajectory in the week ending January 16, 2015. In the two to 30-year segment, the fall in yields was in the 10–16 basis points, or bps, range. The benchmark ten-year Treasury notes, or T-notes, ended the week at a 1.83% yield. It was down 15 bps from a week ago. Its yield was down 103 bps—from the level last year.
High Yield Bonds
Mathew Sawyer: – Which junk bond ETF is best for 2015? – JNK and HYG have near identical returns over the past 5 years. Both have seen their payouts decline along with interest rates. But which is best?
Bloomberg: – Junk replaces government debt as most-disdained. – Junk bonds have supplanted sovereign debt as the asset investors would most like to bet against amid concern that a slowdown in global economic expansion will make it harder for the world’s neediest borrowers to meet their obligations.
Bloomberg: – A credit line reset looms over cash-strapped oil drillers. – Oil and gas companies have April circled on their calendars. That’s when their lenders will recalculate the value of properties that energy companies staked as loan collateral. With those assets in decline along with oil prices, banks are preparing to cut the amount they’re willing to lend, crimping the ability of U.S. drillers to keep production growing.
Bloomberg: – Distressed oil rig bonds soar over 20% yield mark. – To appreciate the stunning reversal of fortune wrought by the collapse in oil prices, look no further than Mexico’s rig operators.
Bloomberg: – Fat junk-bond fees are hard to get in latest Wall Street lament. – Wall Street’s biggest bond brokers just limped through a rough year for trading revenues. They may be in for more pain as one of their most lucrative businesses dries up.
Emerging Market Bonds
Bloomberg: – Ukrainian bonds sink to record as Poroshenko sees more violence. – Ukrainian bonds sank to their lowest level on record after President Petro Poroshenko warned the pro-Russian insurgency in a conflict that has claimed almost 5,000 lives may escalate as the country struggles to secure another bailout.
Harris Roen: – Which are the green alternative energy mutual funds? – There is a wide range of how focused the different green mutual funds are on alternative energy. Mutual Funds with the greatest alternative energy focus are ALTEX, NALFX and GAAEX.
Businessweek: – BlackRock leads funds raising credit lines amid review. – As Larry Fink predicts bouts of volatility in bond markets in the coming years, his firm is leading a push among mutual fund firms to reinforce their defenses.
Dividend Investor 101: – Guggenheim Build America Bond managed duration trust: A Fund That Holds A, AA And AAA Bonds And Yields 7.44%. – GBAB holds mostly A and AA Build America Bonds. These types of special bonds have coupons that yield between 5% and 8%. This closed end fund is currently 7.5% below NAV, which makes it more attractive than funds that sell at a premium to NAV.
FT: – Reits rally looks to be running out of steam. – How long can real estate keep going ? Ever since bond yields peaked early last year and began their descent, real estate — particularly in the US — has been by far the most conspicuous winner.
24/7 Wall St: – Analyst’s 5 Top high-yielding dividend REIT stock picks for 2015. – One thing is for sure, anybody looking for income ideas certainly isn’t looking at U.S. Treasury debt. With the 30-year bond hitting almost the lowest yields ever, investors looking for ideas to generate income with at least a modicum of safety have few alternatives. A new research note from Baird includes a real estate investment trust (REIT) portfolio of solid stocks that have the qualifications the Baird analysts are looking for.
ECB said to propose #QE of 50B euros per month thru 2016. The purchases of sov bonds won’t start before March, acc to ECB exec proposal.
— Scarlet Fu (@scarletfu) January 21, 2015
Is everyone now long treasures ahead of SQE1? At the tights? Better hope what happened with QE3 doesn’t repeat itself
— Peter Tchir (@TFMkts) January 21, 2015