High quality government bonds hit after upbeat China data
Highly rated government debt and other havens like gold dropped after upbeat data on China’s sprawling factory sector reinforced expectations that a global growth slowdown will not morph into recession.
US and German sovereign bonds on Monday recorded their sharpest rises in yield in three weeks as investors shifted into riskier assets. The 10-year Treasury yield climbed 0.07 percentage points to 1.847 per cent, with the equivalent Bund yield up by the same margin to minus 0.289 per cent.
Gold was also under pressure, slipping 0.5 per cent to $1,455 a troy once, as the pan-European Stoxx 600 advanced 0.4 per cent. MSCI’s broad measure of Asian stocks outside Japan inched up 0.3 per cent, while S&P 500 futures pointed to gains of around 0.4 per cent for Wall Street’s main stock barometer.
Analysts said a duo of surveys showing Chinese factory executives taking on a more optimistic outlook had boosted sentiment across global markets.
The official Chinese purchasing manager’s index, released at the weekend, showed the country’s manufacturing industry returned to growth in November, with industry participants pointing to growth in production and new orders. A private poll pointed to the swiftest rate of expansion for the sector in three years.
“Stronger-than-expected PMIs in China have contributed to lift investors’ mood,” said Chiara Silvestre, economist at UniCredit.
The brighter data from China, the world’s biggest emerging market, underscore how the mood among traders and investors has improved after concerns over the potential for a global recession this summer sent traders piling into the perceived safety of government bonds.
“We believe that after a globally synchronised slowdown over the past 18 months, global growth is now bottoming out well short of recession territory and will get back on track early next year,” said Quinn Brody, macro strategist at Deutsche Bank.
“While activity may slow a bit further from its current levels in the near term, we are optimistic when looking forward several quarters.”
He added that risks stemming from the US-China trade war and concerns over a chaotic no-deal Brexit had eased and “the possibility of a radical policy shift to the far-left in the US and the UK after their respective elections seems remote.”
Economic data releases have improved significantly since the late summer; Citigroup’s economic surprise index registered negative 11 at the end of last week from lows near negative 28 in August — suggesting a slowdown in rate of disappointing reports on the world economy.
Global stock markets are on track to post a strong performance this year with MSCI’s broad index of developed and emerging market stocks up 20 per cent for the year to date, rebounding from a fall of 11 per cent in 2018.
Meanwhile, investors have begun pulling out of top-rated bonds after a rush into the asset class earlier this year sent the stock of negative-yielding debt surging to a record of $17tn in August. The value stood at $12tn as of Friday.