Friday February 27: European Bond Yields Continue to Fall Ahead of ECB Purchases in March

Stocks hold close to record highs as this week reflected a shift of attention from Greece to monetary policy in the U.S. and Europe. The dollar continues to approach an 11 year high ahead of rakes hikes, and the eurozone yields fall ahead of ECB QE. The S&P closes at 2,104 which is down .3% for the week and up 5.5% for the month of February. Brent crude closes at $62.58 which is up 3.9% for the week as gold finishes the week with a weekly rise of $10. The 10 year yield falls 2 points to 2.00% as the dollar appreciates versus the euro to $1.1189.

European funds have experienced heavy inflows ahead of ECB quantitative easing. European stocks have reached new highs and bond yields have fallen to record lows amid capital inflows. The bond market in Europe enters unprecedented territory with negative yields, and there is no historical basis for what could happen next with prices at record highs. Among other factors, negative yields could be due to the fact that there are a lack of truly safe assets as far as fixed income is concerned, so investors are willing to pay a premium for government bonds that do carry this safety. The ECB will be buying large amounts of bonds in an environment where there are no sellers. This could potentially create a huge imbalance which could shake markets at some point.

Fed Vice Chairman Stanley Fischer says that the Fed is most likely to raise rates in June or September. Fischer is a non-voting member of the Fed and typically falls on the hawkish end of the spectrum. However Fischer leaves ambiguity in his statement saying that “things could happen” and that could change the Fed’s decision. According to Fischer, the full unployment target is very close and inflation could take off as the impact of low oil prices gets priced into consumer discretionary spending.

Friday February 27: European Bond Yields Continue to Fall Ahead of ECB Purchases in March

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