Bonds In Conversation : Too Many QEs' Spoil The Broth

It is the usual drill for another bazooka of a QE, this time out of the ECB. And the market got it so well figured that all the bonds are yielding nothing.

And if you had bought the bonds ahead in EUR when Draghi made his announcement in October (hints dropped in August), the chances are that you would have lost out more on currency losses than the bond price gains unless you are from Norway, Sweden, Malaysia, Mexico and maybe, Japan and UK.

The well rehearsed reactions were seen typifying a QE that has met market expectations because the market likes optimism given that we have had enough despair in the past months over oil prices that has yet to deliver much economic cheer to the world except for Americans spending their savings mostly on food, pizza and beer to be exact.

OIL SAVINGSSource : Fortune Magazine

What happened to all those warnings on “excessive risk taking” by the IMF, BIS and World Bank last year ?

I am not sure but there is no turning back now.

I changed my mind sometime yesterday mid morning as I was telling a friend. Because the SNB move last week has opened a window of opportunity for Draghi to come out guns blazing this time so as not to disappoint market expectations. And thus I saw EURJPY as a big sell even as it was at its 12 month low. Lucky guess.

Yet it is obvious the market was lying because the EUR’s death plunge was certainly a case of positioning i.e. the market was not as short as all the reports made it out to be as evidenced in the latest CFTC report.


We observe that EUR shorts as of 13 Jan is not as severe as last Nov or June 2012.

Note that the USD Index has gained about 18% from its run up since June last year and suffered a similar loss during the QE period. This is exactly what happened to the EUR since last June.

dxy INDEXDXY Index Weekly Chart

eur weeklyEUR Weekly Chart

And we are not there yet if Italian Prime Minister has his dream of the EUR trading at parity to the USD.

We should be seeing EUR bond market action heat up in the months ahead as issuers pile in to get a share of the liquidity.

We should also hope to see the EM markets will enjoy the usual QE rally and the MSCI EM Fx Index is turning up as inherent problems are postponed in time for the celebration of ECB QE and EM bonds would fly like their did for Fed and BoJ’s QE’s.


Does anyone care that it will not work ?

Mervyn King, former BoE Governor
“We have had the biggest monetary stimulus that the world must have ever seen, and we still have not solved the problem of weak demand. The idea that monetary stimulus after six years … is the answer doesn’t seem (right) to me,”

Larry Summers
“It’s like standing up in an audience. If you do it, you can see better. But if everyone does it at the same time, no one is better off.”

Nouriel Roubini
ECB went for a larger QE program (over 1tr euros) in exch low risk sharing (only 20% of bonds purchased by ECB, 80% by National Central Banks)

Well, no one really questioned Abenomics till much later when they had their fat profits in pockets.

That will be the same this time as per the usual drill. What is different this time is that ECB will be buying bonds at negative yields as Draghi has promised, every accountant’s nightmare if you ask me along with settlements and operations staff. I should imagine banks would have updated their systems to accept the negative yields by now given that Swiss 10 year bonds are the first in the world to trade at negative yields.

And I cannot possibly imagine why the world leaders are cheering at this when it has been reduced to what common sense would label as a farcical charade of central  bankers.


Dearth of issuance to date. Will update in a later post.

Rates edged higher on the higher USDSGD which now people blame on the Malaysian ringgit.



Good luck !

USD Asian Bonds Indicative Prices


SGD 2014 Indicative Bond Prices


SGD 2013 Indicative Bond Prices