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LGT Navigator: Government bond yields collapsing

August 8, 2019

While concerns about the impact of global trade skirmishes are driving investors out of risky assets, yields of 30-year Treasuries are approaching the all-time low of 2.089% of July 2016.


Given the demand for Treasuries, investors seem to be betting that the Federal Reserve is accelerating its rate cuts to combat the threat of recession. The picture in Europe is similar: 10-year Bund yields has never been lower. They shortly dipped below -0.6%. This is the lowest value the Federal Republic of Germany has ever had to pay when issuing a ten-year German government bond in the primary bond market, even though economic figures begin to paint a rather gloomy picture of the economy. Meanwhile, Asian central banks continued to pour oil into the fire of the yield descent: the New Zealand monetary authorities also lowered their key rate from 1.5% to a record low of 1.0% due to concerns about future economic growth. The Thai central bank lowered its key interest rate for the first time in four years by -0.25% to 1.5%, unexpectedly. India reduced its key rate by -0.35% to 5.4%, also with economic stimulus intentions. All these rate cuts caused yields to tumble further. In addition, the nature of safe investments undoubtedly contributed to this slide, along with the current attractiveness of carry business.

Significant increase in SNB foreign exchange reserves

The currency reserves of the Swiss National Bank increased significantly by CHF 8.13bn in July. Thus, a total of CHF 773.73bn was reached (excl. gold). Possible interventions on the foreign exchange market are difficult to spot from the figures. A main reason for the increase in the portfolio in July may also has been the performance of the foreign currency exposure.

Chinese exports rebound surprisingly

Just as Chinese companies were preparing for new tariffs from the US, July export figures show a year-on-year growth in exports of goods of +3.3%. In view of the more difficult trading conditions, a decline in export volume of -1.0% to -2.0% was actually expected. Stabilizing exports would be a positive signal for an otherwise cooling economy. However, these figures are unlikely to support a rebound trend as the trade rumbling and the yuan depreciation did not start until August; July was a rather quiet month in this regard. Meanwhile, the Asian stock markets took comfort and begin taking back a little of their recent hefty losses.



Economic Indicators August 8

MEZ Country Indicator Last
08:30 FR BdF Business Sentiment 95.5
09:00 ES Industrial Production (y/y) 1.8
14:30 US Initial Jobless Claims (thousands) 215
- CN Trade Balance 50.98
- CN Exports (y/y) -1.3
- CN Imports (y/y) -7.3

Earnings Calendar August 8

Country Corporate Period
CH Adecco S1
DE Adidas S1
DE Deutsche Telekom Q2
CH Galenica S1
DE Merck KGaA Q2
DE Stroeer Q2
CH Swiss Prime Site S1
CH Zurich Insurance S1



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Source: LGT Bank (Switzerland) Ltd.

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Core Personal Consumption Expenditure
MEZCountryIndicatorLast08:00DERetail Sales (y/y)-1.7%08:45FRConsumer Prices EU Harmonized (y/y)1.4%09:00ESGDP (y/y)2.4%09:55DEUnemployment Rate5.0%11:00EUGDP (y/y)1.2%11:00EUCore Consumer Prices (y/y)1.1%11:00EUUnemployment Rate7.5%11:00ITConsumer Prices EU Harmonized (y/y)0.8%12:00ITGDP (q/q)0.12%14:15USADP Employment Report102k20:00USFederal Funds Target Rate2.5%