JGB yields slide as bank worries resurface; BOJ meeting looms

TOKYO, April 26 (Reuters) – Japanese government bond yields fell on Wednesday, tracking declines in US yields as concerns about the health of the banking sector and a possible recession resurfaced, spurring capital flight to safer debt securities.

Meanwhile, an auction of two-year JGBs went smoothly, with investors feeling confident that the Bank of Japan won’t raise short-term rates soon.

New BOJ governor Kazuo Ueda oversees his first policy decision on Friday, and the consensus is that the policy framework will remain unchanged, including yield curve control (YCC) settings that keep the 10-year yield pinned within 50 basis points (bps) on either side of zero.

The 10-year JGB yield fell 2.5 bps to 0.45% as of 0545 GMT, while benchmark 10-year JGB futures rose 0.34 yen to 148.08, the highest level this month.

The two-year JGB yield fell 0.5 bp to -0.045%.

Ueda on Tuesday stressed the need to keep monetary policy ultra-loose for the time being, adding that tightening now could push down future inflation.

“It looks to us as if Mr. Ueda is determined to avoid any surprise around changes to YCC by offering clear, ongoing insights into the BOJ’s thinking, backed by detailed price forecasts,” Yasunari Ueno, chief market economist at Mizuho Securities, wrote in a client note.

The 20-year JGB yield declined 3.5 bps to 1.08%, while the 30-year yield slipped 3 bps to 1.31%.

The five-year yield fell 1 bp to 0.15%.

(Reporting by Kevin Buckland; Editing by Dhanya Ann Thoppil)

US futures bounce but bank worries boost safer bets

SINGAPORE, April 26 (Reuters) – US stock futures bounced as buybacks and earnings beats boosted tech giants in after-hours trade, and helped the mood in Hong Kong on Wednesday, however banking nerves kept bonds well bid and the dollar supported through a cautious Asia session.

Nasdaq futures were up 1.3% and S&P 500 futures ESc1 up 0.4% following better-than-expected profits at Microsoft MSFT.O and a USD 70 billion stock buyback at Google parent Alphabet. Both stocks rose after the bell.

Facebook parent Meta Platforms reports later in the day, with US markets on edge over softening US. data and fresh regional bank jitters.

MSCI’s broadest index of Asia-Pacific shares outside Japan touched a one-month low before recovering slightly to trade 0.3% higher in the afternoon.

European futures were last 0.6% lower.

On Tuesday, First Republic Bank shares were sold to a record low after the bank disclosed a USD 100 billion plunge in deposits.

The Wall Street Journal’s “Fed whisperer” Nick Timiraos also wrote an article titled “Why the banking mess isn’t over”, including comments from former Dallas Fed President Robert Kaplan saying bank issues have a long way to run.

The S&P 500 and Nasdaq both fell heavily while bonds rallied sharply and interest rate futures markets priced in a higher chance of Fed cuts later in the year.

The US dollar rose broadly against most majors, save for the safe-haven yen, and in bond and currency markets the moves haves stuck.

“Clearly, the fear factor drove dollar gains,” said analysts at Mizuho.

“The fear of contagion and the repeated mantra of isolated incidents has inevitably led to ‘shy’ and yield seeking deposits seeking to bank with the US Treasury,” they said, referring to the broad rally in bonds.

Two-year Treasury yields dropped 18.7 basis points on Tuesday and were steady at 3.9365% in Asia. Ten-year yields fell nearly 12 bps, their sharpest drop in more than a month. Yields fall when bond prices rise.

Elsewhere the mood was jittery. Investors brushed off a record loss at South Korean chipmaker SK Hynix as it forecast improving market conditions. The Hang Seng tech index .HSTECH swung from small losses to a 2% gain.

Australian inflation eased from 33-year highs, nudging the Aussie dollar to a six-week low at USD 0.6603 and firming up market wagers that the central bank will keep rates on hold at its meeting next week.

The euro was last at USD 1.0987. Gold was pinned just below USD 2,000 an ounce.

Brent crude futures hovered at USD 81.35 a barrel having dropped almost 4% overnight with the risk-averse mood.

(Editing by Sam Holmes)

Debt ceiling worries bubble up in US stock options market

NEW YORK, April 26 (Reuters) – Worries over a debt ceiling showdown are creeping into US options markets, as investors grow increasingly concerned that lawmakers will be unable to hammer out a deal in coming weeks, potentially sparking stock volatility as a key deadline nears.

Although concerns related to raising the USD 31.4 trillion US debt ceiling have been apparent in Treasury markets for a while, equities markets have been less fazed, with the S&P 500 doggedly holding onto a rally that has seen it gain 6% year-to-date.

In the options market, however, worries are bubbling as some analysts warn the so-called X-date, after which the government is no longer able to pay all its bills, could come in the first half of June.

While most investors still expect lawmakers will avoid a market-churning 2011-style standoff, some are now hedging against the volatility that could result if negotiations come down to the wire or fail, sparking what Deutsche Bank analysts said could potentially be “the defining market event of the summer.”

“It’s something that is definitely getting increasing attention,” said Alex Kosoglyadov, managing director of equity derivatives at Nomura.

Elevated concern can be seen in one measure of S&P 500 skew – a gauge of relative demand for put versus call options – that has jumped to a one-year high, driven in part by some large trades that would pay out if equity volatility spiked in coming months, Kosoglyadov said.

Call options convey the right to buy the underlying security at a fixed price in the future, while puts convey the right to sell at a set price.

Meanwhile, the volatility term structure – a curve showing the change in expectation for future stock market gyrations – shows the July futures for the Cboe Volatility Index (VIX), often called “Wall Street’s fear gauge”, trading 1.2 points higher than June, the largest gap of any two months between June and December

Market participants also pointed to a single trade last week in which a buyer purchased USD 16 million in VIX options that would pay out if volatility spiked in June as a likely protection play against debt ceiling-related turmoil.

“While the most probable outcome is a resolution as history dictates, we believe the markets could be increasingly focused on it as a risk if resolution is delayed to the 11th hour,” said Max Grinacoff, equity derivative strategist at BNP Paribas.

For now, “people are starting to put it on their radar,” Grinacoff said.

Republican lawmakers who control the US House of Representatives will be tested in coming days to muster the 218 votes needed to adopt a plan to slash spending while raising the debt ceiling, a move they hope will jumpstart talks with President Joe Biden.

The proposal has little chance of passing the Democratic-controlled Senate, and the White House said Tuesday that Biden would veto it if it reached his desk.

US Treasury Secretary Janet Yellen on Tuesday warned that failure by Congress to raise the government’s debt ceiling – and the resulting default – would trigger an “economic catastrophe” that would send interest rates higher for years to come.

AWKWARD TIMING

Legislative standoffs over debt limits this last decade have largely been resolved before they could ripple out into markets. That has not always been the case: A protracted standoff in 2011 prompted Standard & Poor’s to downgrade the US credit rating for the first time, sending financial markets reeling.

This year’s worries come at a sensitive time for stocks, with investors digesting a flare-up of last month’s banking concerns, slowing corporate earnings and worries that the Federal Reserve’s aggressive rate increases have put the economy on course for a recession.

Phil Orlando, chief equity strategist at Federated Hermes, sees a possible debt ceiling fiasco as one possible factor contributing to his forecast for the S&P 500 to fall back to 3,500 this year, putting it some 14% below its current level.

“You are going to have all these fundamental pressures — and then our friends in Washington aren’t going to be able to agree on what to do with the debt ceiling,” he said.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Sam Holmes)

Oil drops nearly 4% as recession fears outweigh US inventory draw

NEW YORK, April 26 (Reuters) – Oil prices dropped by almost 4% on Wednesday, extending the previous session’s sharp losses, even after a report showed US crude inventories fell more than expected, as recession fears grew for the world’s biggest economy.

Brent crude settled at USD 77.69 a barrel, losing USD 3.08, or 3.8%. US West Texas Intermediate crude settled at USD 74.30 a barrel, shedding USD 2.77, or 3.6%.

Energy Information Administration (EIA) data showing US crude inventories fell last week by 5.1 million barrels to 460.9 million barrels helped to limit the price fall, far exceeding analyst forecasts of a 1.5 million drop in a Reuters poll.

Gasoline and distillate stocks also drew down, sinking by 2.4 million barrels to 221.1 million barrels and almost 600,000 barrels to 111.5 million barrels, respectively, the EIA said.

“The complex appears more focused on a recession that may be well under way rather than some current EIA statistics that have generally been tilting bullish,” said Jim Ritterbusch of consultancy Ritterbusch and Associates.

A forecast of higher refinery activity, but lower crude exports, will continue a push and pull for weeks.

“Refinery runs are set to climb in the weeks ahead, boosting the demand side of the ledger, but countering this is the expectation of lower crude exports, as the tightening of the Brent-WTI spread weighs on buying appetite,” Matt Smith, lead oil analyst for the Americas at Kpler, said.

Oil prices have erased all their gains since the Organization of the Petroleum Exporting Countries (OPEC) and producer allies such as Russia, known collectively as OPEC+, announced in early April an additional output reduction until the end of the year.

Russian Deputy Prime Minister Alexander Novak said on Wednesday that OPEC+ remains an efficient tool for coordination.

Oil prices fell more than 2% on Tuesday as lingering economic concerns and expectations of further interest rate hikes that could curtail fuel demand growth countered signs of improving short-term consumption gains.

US consumer confidence dropped to a nine-month low in April as worries mounted, heightening the risk of the economy falling into recession this year. New orders for key US-manufactured capital goods also fell more than expected in March and shipments declined.

“This (data) will add credence to claims that the US economy is edging closer to a recession,” said PVM Oil’s Stephen Brennock.

Investors also are concerned potential interest rate hikes by inflation-fighting central banks could slow economic growth and dent energy demand in the United States, Britain and the European Union.

The US Federal Reserve, the Bank of England and the European Central Bank are all expected to raise rates at their coming meetings. The Fed meets over May 2-3.

(Additional reporting by Ahmad Ghaddar, Muyu Xu and Stephanie Kelly; Editing by Alexander Smith and Andrea Ricci)

Gold holds tight range as traders seek direction from US data

April 26 (Reuters) – Gold prices moved in a tight range on Wednesday, with recessionary fears lending some support to the safe-haven asset, while investors sought more clarity on the Federal Reserve’s rate-hike trajectory from US economic data due this week.

Spot gold was steady at USD 1,996.99 per ounce by 0541 GMT, trading in a USD 9 range, while US gold futures rose 0.1% to USD 2,006.90.

Investors seemed reluctant to offload their gold holdings amid weak US economic data, and “trading conditions will remain choppy, and any dips towards USD 1,950 could be snapped up,” said Matt Simpson, a senior market analyst at City Index.

Data on Tuesday showed US consumer confidence dropped to a nine-month low in April as worries about the future mounted, further heightening the risk that the economy could fall into recession this year.

Recessionary fears already seem to be providing a floor for gold prices, and “Friday’s personal consumption expenditures report will likely pack the biggest punch for gold,” Simpson added.

The dollar index eased, making gold less expensive for overseas buyers.

Investors will closely watch US quarterly gross domestic product data scheduled for Thursday, followed by the reading on the core PCE index on Friday, ahead of the Fed’s rate-setting Federal Open Market Committee meeting on May 2-3.

Market participants expect the Fed to hike interest rates by 25 basis points.

Although gold is considered a hedge against inflation and economic uncertainty, higher interest rates dim the non-yielding asset’s appeal.

Australian inflation, meanwhile, eased from 33-year highs in the first quarter as the cost of living saw the smallest rise in more than a year, while core inflation dipped below forecasts, suggesting less pressure for another hike in interest rates.

Elsewhere, spot silver fell 0.1% to USD 25.03 per ounce and platinum jumped nearly 1% to USD 1,096.83.

Palladium was up 1.1% to USD 1,499.30, on track to snap two session of losses, if gains hold.

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Sherry Jacob-Phillips and Varun H K)

Banking blip? Not so fast

April 26 (Reuters) – An unholy trinity of US developments on Tuesday – poor corporate earnings, a bank’s value going up in smoke, and slumping consumer confidence – will likely set an extremely gloomy tone for Asian markets on Wednesday.

This will be the backdrop to trade figures from Thailand and New Zealand, industrial production data from Singapore and inflation figures from Australia.

The three main indexes on Wall Street closed down between 1% and 2% – the Nasdaq’s 2% fall was its steepest in six weeks – as fears over the recession and the banking sector intensified.

The travails at First Republic Bank FRC should be a wake-up call to anyone who thought the US banking turmoil had somehow been cleared up in a matter of weeks.

After reporting on Monday a plunge of more than USD 100 billion in deposits in the first quarter, shares on Tuesday plunged 50% at the bank – the 15th largest in the country at the start of the year. The bank has lost 93% of its value this year.

The wider US regional banking index’s 4% slide – its fourth straight decline – took its year-to-date decline to 25%.

Notably, the plunge in US bond yields and Fed expectations on the back of this did not weaken the dollar – safe-haven buying pushed it up 0.5% for one of its best days since the banking shock in mid-March.

Safe-haven flows dominated trading on Tuesday, with the Japanese yen, Swiss franc, government bonds and gold all posting strong gains.

If there is a tailwind for Asian markets on Wednesday amid the headwinds it will be the after-hours results from Google’s parent company Alphabet (GOOGL) and Microsoft (MSFT). Profits at both tech giants topped Wall Street estimates, and shares in both rose 4% in after-hours trading.

On the economic data front on Wednesday, Australian weighted annual CPI inflation is expected to have finally slowed in the first quarter to 6.9% from a 33-year high of 7.8%.

Here are three key developments that could provide more direction to markets on Wednesday:

– Australia CPI inflation (Q1)

– Singapore manufacturing (March)

– Thailand trade (March)

(By Jamie McGeever; Editing by Josie Kao)

10-year yields post steepest fall since March as recession worries spike

NEW YORK, April 25 (Reuters) – Benchmark 10-year Treasury yields fell by their largest amount since March on Tuesday while short-term yields climbed as investors balanced rising concerns about the regional banking sector and the possibility of an imminent recession with worries about the US debt ceiling.

Longer-duration Treasury yields fell across the board as shares of First Republic Bank (FRC) dropped more than 35% after the company reported a more than USD 100 billion plunge in deposits in the first quarter, increasing fears that Wall Street has not seen the last of the regional banking crisis.

Consumer confidence, meanwhile, unexpectedly fell to a nine-month low in April, increasing market concerns about a recession.

“As the data become softer, it’s bringing us closer to the most forecasted recession in our lives,” said Jim Schaeffer, global head of leveraged finance for Aegon Asset Management. “Once the market is confident about when the Fed is going to pause and how long they will keep rates at the same level, it will be less concerned about the debt ceiling.”

The Federal Reserve is widely expected to raise benchmark interest rates by another 25 basis points at its policy meeting next week. Markets are pricing in a more than 50% chance the central bank has to cut rates by the end of this year, according to CME’s FedWatch Tool.

The yield of 3-month Treasuries, which could be among the securities most affected by a standoff over the US debt limit, jumped 7 basis points to 5.13%, slightly below the 16-year high reached earlier this month.

The yield on 10-year Treasury notes was down 11.7 basis points to 3.398%, while the yield on the 30-year Treasury bond was down 7.7 basis points to 3.652%.

Bond yields move in the opposite direction of prices.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -56.5 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 18.3 basis points at 3.961%.

April 25 Tuesday 2:51PM New York / 1851 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills	4.975	5.1091	0.048
Six-month bills	4.775	4.9747	-0.077
Two-year note	99-216/256	3.9587	-0.185
Three-year note	100-74/256	3.6461	-0.188
Five-year note	100-206/256	3.4457	-0.159
Seven-year note	101-64/256	3.4205	-0.138
10-year note	100-216/256	3.3977	-0.117
20-year bond	101-128/256	3.7666	-0.087
30-year bond	99-136/256	3.6507	-0.078

DOLLAR SWAP SPREADS
	Last (bps)	Net Change (bps)
U.S. 2-year dollar swap spread	25.75	-1.50
U.S. 3-year dollar swap spread	17.50	-1.00
U.S. 5-year dollar swap spread	7.00	-0.50
U.S. 10-year dollar swap spread	-0.50	0.00
U.S. 30-year dollar swap spread	-42.00	-1.00

(Reporting by David Randall; Editing by Tomasz Janowski, Jonathan Oatis and Nick Zieminski)

Dollar bulls at big risk vs yen as Fed-BoJ policy divergence peaks

April 25 (Reuters) – Flight-to-safety flows may have cushioned USD/JPY’s fall on Tuesday, but the expected reversal of the Fed’s rate hike cycle this year points to a further slide, particularly with no scope for further BoJ easing.

Two-year Treasury-JGB yield spreads fell 13bp on Tuesday and 25bp from last week’s high, as the market prices in a final 25bp Fed hike at next week’s meeting, followed by a series of rate cuts from Q3 onward.

A close below the daily tenkan at 133.58 would favor a drop toward 132.00 and where USD/JPY was the last time yield spreads were this low.

Disappointing Philly Fed and consumer confidence data, plus lingering banking concerns following First Republic Bank’s Q1 report on Monday are weighing on Treasury yields.

The recovery from March’s banking crisis slide has crested and 2022’s extraordinarily overbought surge to 20-year highs weighs medium-term.

USD/JPY’s recovery from the March’s acute phase of the US banking crisis will be replaced by a chronic phase, with credit getting tighter faster and triggering eventual rate cuts.

BoJ’s policies are so easy there’s no room for loosening. If anything, its yield curve control policy and massive QE need rethinking.

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Gold gains as traders hunker down for economic cues

April 25 (Reuters) – Gold prices rose on Tuesday as steeply lower Treasury yields countered pressure from a stronger dollar, while investors awaited a slew of US economic data due later this week that could sway the Federal Reserve’s interest rate-hike stance.

Spot gold was up 0.7% to USD 2,002.32 per ounce by 2:17 p.m. EDT (1817 GMT), while US gold futures settled 0.3% higher at USD 2,004.50.

The rival safe-haven dollar rose 0.5%, making bullion more expensive for buyers holding other currencies, while benchmark 10-year Treasury yields fell by their largest amount since March.

A weak US consumer confidence report and lacklustre manufacturing data fanned fears of economic slowdown, lowering the bets for a rate hike next week.

Markets now see a 73% chance of a 25-basis-point rate hike at the Fed’s May 2-3 meeting.

Next on the radar is the quarterly gross domestic product data scheduled for Thursday followed by the reading on the core personal consumption expenditures (PCE) index, the Fed’s favored inflation gauge, on Friday.

“The Fed would do its best to try and hold rates higher in order to quell inflation but that likely means that it might be a constraint on the economy growing as quickly,” said Everett Millman, chief market analyst at Gainesville Coins.

“No matter what decision they have to make, it’s probably going to result in some type of stress, and that looming uncertainty is certainly what gold is going to be sensitive to.”

While gold is considered a safe haven during economic uncertainties, higher interest rates dull appeal for zero-yield bullion.

Traders also took stock of US Treasury Secretary Janet Yellen’s warning that failure by Congress to raise the government’s debt ceiling would trigger an “economic catastrophe” that would send interest rates higher for years to come.

Silver shed 0.5% to USD 25.04 per ounce, platinum rose 0.8% to USD 1,090.73 and palladium lost 3.1% to USD 1,487.66.

(Reporting by Deep Vakil and Ashitha Shivaprasad in Bengaluru; Editing by Subhranshu Sahu, Shailesh Kuber and Maju Samuel)

Spanish stocks clock worst day in a month as Santander leads bank slide

April 25 (Reuters) – Spanish stocks clocked their worst session in a month on Tuesday as heavyweight Santander led a slide among banks amid a disappointing round of earnings for the sector, while an encouraging outlook from Novartis kept healthcare shares afloat.

Spain’s lender-heavy IBEX index fell 1.2%, its worst one-day percentage fall since March 24, while the STOXX 600 index dropped 0.4%.

Santander (SAN) slid 6.0% after weaker trade in Brazil and the US overshadowed a rise in first-quarter net profit on a strong performance in Europe.

The European banking index lost 2.2%, as more bleak earnings from the sector rolled in.

UBS Group AG (UBSG) shed 2.2% after the bank set aside more money to draw a line under its involvement in toxic mortgages, as it girds itself for the “hard” task of swallowing fallen rival Credit Suisse (CSGN).

“We’re seeing widespread weakness in banking shares after Santander warned of a slowdown in the mortgage market,” said Michael Hewson, chief market analyst at CMC Markets.

“While rising rates helped to boost its net interest margin, the flip side of that is the potential for higher borrower distress.”

Hewson also noted the risk of higher impairments for the likes of HSBC (HSBA), Lloyds (LLOY), and NatWest Group (NWG), all of which are due to report in the coming weeks.

First quarter earnings for STOXX 600 companies are expected to fall 2.6%, compared to a decrease of 2.5% from a week earlier, according to Refinitiv data.

The STOXX 600 index is still tracking monthly gains of over 2%.

The European basic resources index slumped 3.0%, extending falls to the fifth straight day and touching its lowest level since late October.

Swedish copper miner Boliden (BOL) tumbled 7.1% after posting first-quarter adjusted operating profit below market estimates.

The European Central Bank’s (ECB) Chief Economist Philip Lane was reported saying interest rates will need to be raised again at the central bank’s policy meeting next week, echoing a chorus of policymakers that have recently sounded hawkish.

Money markets are pricing in a 25-bp rate hike by the ECB on May 4.

In a bright spot, Novartis AG (NOVN) gained 4.0% as it raised its full-year earnings outlook following cost cuts and a breast cancer drug trial success, lifting healthcare stocks by 0.6%.

ABB (ABBN) climbed 3.5% as the engineering and technology group raised its full-year outlook for sales and profit while reporting first-quarter results.

The broader Swiss Market index gained 0.4%, an outlier among European gauges on the day.

(Reporting by Shreyashi Sanyal in Bengaluru; Aditional reporting by Shubham Batra; Editing by Savio D’Souza, Varun H K, and Josie Kao)

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