Bonds Rise as Oil Extends Decline Below $50; Yen Advances

By Emma O’Brien and Stephen Kirkland

Photographer: Essam-Al-Sudani/AFP/Getty Images

An engineer walks across the Zubair oil field in southern Iraq. The country plans to... Read More

Related

• Euro Expected to Weaken Further, Westpac's Rennie Says
• Shanghai Index Has `Plenty of Room' to Rise: Galasiewski
• Fall in U.S. Stocks to Be `Short Lived,' Zlotnikov Says

Bonds rose and the yen strengthened with gold as oil extended its decline below $50 a barrel and Europe’s economy showed signs of weakness, stoking demand for investment havens. Stocks pared earlier losses.
U.S. 10-year yields slid four basis points to 1.99 percent by 6:37 a.m. in New York, retreating below 2 percent fo the first time since October. A measure of government bond yields worldwide declined to a record. The Stoxx Europe 600 Index slipped 0.1 percent, while Standard & Poor’s 500 Index futures were little changed. The yen rose versus 13 of its 16 major peers and gold jumped 0.5 percent. West Texas Intermediate declined 1.9 percent to $49.10.
While a gauge of services and
manufacturing in the euro area signaled expansion in December, it fell short of initial estimates, data from London-based Markit Economics showed today. The Federal Reserve won’t raise interest rates until late this year “if at all” as declining oil prices and a stronger dollar limit room to increase borrowing costs, Bill Gross, the former manager of the world’s largest bond fund, said yesterday in an outlook published on the website of Janus Capital Group Inc.

Oil Prices

“It’s a sign of things to come,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris. “Falling oil prices mean low inflation. While we expect global growth to pick up, the world is likely to remain in a low-growth, low-inflation environment, which is good news for bonds.”
Oil’s rout has turned energy companies into the biggest losers in a global retreat that has wiped $1 trillion from equity values this year.

Yields Slide

Falling appetite for risk is stoking demand safer assets around the world. The yield on Germany’s 30-year bond reached an all-time low of 1.246 percent. Bond yields in Austria, Belgium, Finland, France and the Netherlands also dropped to records.
Securities in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.28 percent as of yesterday, a record low based on data starting in 1996.
Three shares declined for every one that advanced in the Stoxx 600, with trading volumes 15 percent higher than the 30-day average, according to data compiled by Bloomberg.
TomTom NV jumped 8.5 percent after saying Volkswagen AG selected the Dutch company to use its navigation devices in several car models.
S&P 500 futures were little changed after the gauge slumped the most since Oct. 9 yesterday, closing at its lowest level since Dec. 17.

Emerging Markets

The MSCI Emerging Market Index dropped for a fourth day, losing 1.2 percent as benchmark gauges in Hong Kong, South Korea, Taiwan and India lost at least 1.7 percent.
Stock markets in the Middle East, home to some of the world’s biggest oil producers, extended declines. The Dubai Financial Market Index (DFMGI) tumbled 5.2 percent, Abu Dhabi’s ADX General Index slid 2.5 percent and Qatar’s benchmark gauge declined 2.2 percent. Saudi Arabia’s Tadawul All Share Index lost 3 percent.
Russia’s ruble weakened 4.4 percent to 63.63 versus the dollar and the dollar-denominated RTS Index retreated 1.8 percent, with trading volumes 86 percent less than the 30-day average, data compiled by Bloomberg show. The ruble-based Micex index gained 1.7 percent.

China Stimulus

Credit-default swaps on Russian government debt surged 66 basis points to an almost six-year high of 604 basis points, according to data compiled by Bloomberg. That signals a more than 30 percent probability of default within five years.
The Shanghai stock market was one of the few exchanges that didn’t show losses, with benchmark gauge closing little changed. China is accelerating 300 infrastructure projects valued at 7 trillion yuan ($1.1 trillion) this year to bolster the economy that’s in danger of slipping below 7 percent, said people familiar with the matter who asked not to be identified as the decision wasn’t public.
WTI fell for a fourth day. U.S. crude inventories probably expanded last week, adding to end-of-year levels that were the highest in at least three decades and exacerbating a global glut that’s driven prices to the lowest since April 2009. Brent crude dropped 2.4 percent in London.
The Bloomberg Commodity Index (BCOM) slipped 0.3 percent, extending last week’s loss of 2.5 percent to the lowest level since March 2009.
Gold climbed to $1,210.83 an ounce, rising for a third day in the longest run of gains since October, amid concern that Greece may quit the euro area. Silver advanced 0.6 percent and palladium also rose 0.6 percent.
The yen headed for its biggest two-day gain in three weeks against the dollar, climbing 0.6 percent today to 118.94. Japan’s currency rose 0.8 percent to 141.59 per euro, reaching the strongest since Nov. 3. The dollar advanced 0.3 percent to $1.1897 per euro.
Australia’s dollar jumped 0.6 percent to 81.30 U.S. cents on prospects for China to speed up infrastructure projects.
Norway’s krone tumbled 1.2 percent against the dollar to 7.7317.
It costs $3.5 million upfront and $500,000 annually to insure $10 million of Greek debt for five years, signaling a 61 percent chance of default, according to CMA.
The cost of insuring European corporate debt rose to the highest level in three weeks, with the Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies up two basis points at 66 basis points, according to data compiled by Bloomberg.