Treasury yields drop as inflation moderates

NEW YORK, March 31 (Reuters) – Two-year US Treasury yields were on track to post the largest monthly drop since 2008 on Friday while 10-year yields keyed in on the biggest drop in three years, after data showed inflation moderated in February and as investors sought out bonds for quarter-end.

Treasury yields have stabilized following sharp drops after the collapse of Silicon Valley Bank and Signature Bank this month.

But investors remain wary of any renewed stress in the banking system as they also wait to see how tighter lending standards resulting from the recent bank failures will affect the economy.

Data on Friday showing that inflation cooled in February, though it remained high enough to possibly allow the Federal Reserve to raise interest rates one more time this year.

The data “show that maybe we are seeing some sort of a slowing of the economy, or some kind of relief in the pressure from inflation,” said Michael Lorizio, senior fixed income trader at Manulife Investment Management in Boston.

Fed funds futures traders see slightly higher odds that the Federal Reserve will raise interest rates by 25 basis points when it meets on May 2-3, rather than leave them unchanged.

“The number remains elevated far from their target, far from where they envision it ending the year, so I do think that if the overall tone is supportive of a rate hike, then their preference would be to hike 25 basis points in May,” Lorizio said.

“That being said … there is so much data between now and May 3, none of us really know what that data will look like or what’s next in terms of headlines coming out of the banking sector,” Lorizio added.

Boston Fed President Susan Collins said on Friday that wherever the US central bank stops with its interest rate rises, maintaining that level for some time will be critical in helping to lower high inflation back to the 2% target.

Hopes that the Fed is closer to the end of its hiking cycle have boosted demand for bonds, while month- and quarter-end rebalancing also played a role in Friday’s bond rally.

Benchmark 10-year yields fell 6 basis points on the day to 3.494%. They have fallen by 42 basis points this month, the largest fall since March 2020.

Two-year yields fell 3 basis points to 4.067%. They are down 73 basis points this month, the largest drop since Jan. 2008.

The yield curve between two-year and 10-year notes was last at minus 58 basis points.

March 31 Friday 3:00PM New York / 1900 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills US3MT=RR	4.6475	4.7656	-0.048
Six-month bills US6MT=RR	4.695	4.8867	0.001
Two-year note US2YT=RR	99-163/256	4.0666	-0.032
Three-year note US3YT=RR	102-48/256	3.8325	-0.049
Five-year note US5YT=RR	100-12/256	3.6146	-0.048
Seven-year note US7YT=RR	100-94/256	3.5652	-0.050
10-year note US10YT=RR	100-12/256	3.494	-0.057
20-year bond US20YT=RR	100-176/256	3.825	-0.065
30-year bond US30YT=RR	98-216/256	3.689	-0.057

Be DOLLAR SWAP SPREADS
	Last (bps)	Net Change (bps)
US 2-year dollar swap spread	32.00	-1.00
US 3-year dollar swap spread	17.50	0.25
US 5-year dollar swap spread	5.75	0.25
US 10-year dollar swap spread	-0.50	0.50
US 30-year dollar swap spread	-44.50	1.50

(Reporting by Karen Brettell; Editing by Kirsten Donovan, Will Dunham and Jonathan Oatis)

Gold eases but remains on course for quarterly rise

March 31 (Reuters) – Gold prices were on track for a second straight quarterly rise on Friday, as growing bets that the US Federal Reserve will slow the pace of interest rate hikes drew investors to the metal.

Spot gold was down 0.6% at USD 1,968.25 per ounce by 2:26 p.m. EDT (1826 GMT), after prices moved as much as 0.4% higher following data that showed US consumer spending rose modestly in February. US gold futures settled down 0.6% at USD 1,986.2.

“Gold jumped quickly but modestly after the market-friendly PCE (personal consumption expenditures) report,” said Tai Wong, an independent metals trader based in New York.

“Bulls want a very strong close, ideally above USD 2,000, for quarter-end as a springboard to challenge the USD 2,070 all-time record, but the yellow metal looks a little tired.”

The dollar index, while down for the quarter, firmed on Friday, weighing on demand for the greenback-priced gold. USD/

Global stocks gained after the US data, latching onto hopes for a less challenging Fed interest rate regime. Gold, seen as a safe haven, loses value when investors have an appetite for riskier assets.

Last week, gold topped USD 2,000 after the sudden collapse of two US regional lenders drove bets that the US central bank might pause interest rate hikes to stem the risk of contagion in the global banking system.

Prices retreated after authorities initiated rescue measures, though they have gained about 7.8% so far this quarter.

“The mini-banking crisis has seen yields fall considerably and interest rate expectations pared significantly back, which has propelled gold higher,” said Craig Erlam, senior market analyst at OANDA.

Gold consumption in top hub China slowed this week as a steady rise in domestic prices started to bite, forcing dealers to offer discounts for the first time in months.

Spot silver rose 0.4% to USD 23.96 per ounce, platinum added 0.6% at USD 991.77, and palladium was largely unchanged at USD 1,464.77.

(Reporting by Bharat Govind Gautam, Ashitha Shivaprasad and Deep Vakil in Bengaluru; Editing by Jan Harvey, Krishna Chandra Eluri and Shilpi Majumdar)

China’s demand comeback to help oil weather banking crisis

March 31 (Reuters) – Oil will rebound after recent banking turmoil as demand from top consumer China is set to soar but worries around economic growth will keep both benchmarks hovering below USD 90 this year, a Reuters poll showed on Friday.

A survey of 45 economists and analysts forecast benchmark Brent crude would average USD 86.49 a barrel this year, down from February’s estimate of USD 89.23.

Brent is currently trading around USD 80, having been dragged to 15-month lows near USD 70 earlier this month on mounting worries over the stability of the banking sector. Those fears have since largely been allayed by institutional rescue measures for struggling banks.

“Fundamentals for the oil market do not seem to have changed meaningfully in light of bank runs in the US and the forced takeover of a Swiss bank,” said Suvro Sarkar, energy sector team lead at DBS Bank.

“The dip in oil prices is more of a blip at the moment, rather than a sustained move below USD 80 per barrel”.

Analysts forecast US crude to average USD 80.88 a barrel in 2023, down from the USD 83.94 consensus last month, but still above current trades of around USD 74.

Most analysts polled by Reuters expect oil prices to stay below USD 90 on fears of a recession in developed economies stemming from interest rate increases to bring down inflation.

Global oil demand is seen rising by about 1 million-2 million barrels per day (bpd) in 2023, with dips related to economic jitters or slowdowns in the West likely to be countered by increases from China, the world’s biggest oil importer.

“Oil demand in China should pick up a bit further over the year. And while US demand should slow, it won’t fall, even as the economy weakens under the weight of higher interest rates,” Capital Economics’ Bill Weatherburn said.

Along with China, prices will also hinge on potentially declining Russian oil production due to Western sanctions, with a combination of the two likely tightening global supplies, analysts said.

OPEC+, which comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, is likely to stick to its deal on output cuts of 2 million bpd until the end of the year, which could add to upward price momentum, the poll showed.

(Reporting by Bharat Govind Gautam in Bengaluru; Additional reporting by Deep Vakil and Swati Verma; Editing by Noah Browning and Jan Harvey)

China rolls over USD 2B loan to Pakistan

ISLAMABAD, March 31 (Reuters) – Pakistan’s Finance Minister Ishaq Dar said on Friday that China has rolled over a USD 2 billion loan.

“I’m pleased to announce the Chinese rollover happened on 23 March,” he told the parliament.

(Reporting by Asif Shahzad; editing by Jason Neely)

Southeast Asian finance leaders discuss containing global risks

NUSA DUA, Indonesia, March 31 (Reuters) – Talks between Southeast Asian central bank governors and finance ministers entered their final day on Friday, with the leaders focused on strengthening the region’s resilience against global risks.

The gathering of finance leaders from the Association of Southeast Asian Nations (ASEAN) comes amid a backdrop of recent global banking turmoil after the collapse of Silicon Valley Bank and the bailout and takeover of Credit Suisse.

Finance Minister Sri Mulyani Indrawati of Indonesia, which is chairing ASEAN this year, said that even though the region was projected by international organisations to book positive growth this year, policymakers should regularly update policies to respond to fast-changing global dynamics.

“We all need to remain vigilant and to be prepared for some external challenges that may cause turbulence in our regional economies,” she said.

Indonesia’s central bank governor Perry Warjiyo called on the forum to boost the use of local currencies for settlements to reduce volatility and exposure to major currencies.

Officials at the meeting in Bali also proposed discussing ways to improve the connectivity of region’s payment systems, even though the relevant infrastructure in some ASEAN countries was not yet fully developed, Indonesia’s deputy central bank governor Dody Budi Waluyo said on Thursday.

They also discussed cryptocurrencies and central bank digital currencies, he added.

At a meeting on the sidelines of the event, the central bank governors of Indonesia and the Philippines said their banking systems were resilient and that stricter regulations were in place to prevent a repeat of the Asian financial crisis in the late 1990s.

(Reporting by Stefanno Sulaiman; additional reporting by Ananda Teresia in Jakarta. Editing by Ed Davies, Kanupriya Kapoor)

South Korean shares end quarter 11% higher

SEOUL, March 31 (Reuters) – Round-up of South Korean financial markets:

* South Korean shares rose 1% on Friday, buoyed by Wall Street’s overnight gains and China’s better-than-expected manufacturing data, ending the quarter with its best performance in over two years.

* The Korean won weakened, while the benchmark bond yield rose.

* The benchmark KOSPI ended up 23.70 points, or 0.97%, at 2,476.86, hitting the highest level since February 9.

* The KOSPI ended the week 2.56% higher, the month 2.65% higher, and the quarter 10.75% higher. It was the best quarterly performance since the last quarter of 2020.

* China’s manufacturing activity expanded at a slower pace in March, official data showed on Friday, which still beat expectations. The services sector expanded at the fastest pace in nearly 12 years.

* “The data added to hopes for an economic recovery in China and provided support to the local stock market as well,” said analyst Lee Kyoung-min at Daishin Securities.

* Technology giant Samsung Electronics rose 1.27%, but peer SK Hynix lost 0.23% and battery maker LG Energy Solution fell 0.68%.

* Hyundai Motor gained 1.82% and sister automaker Kia Corp jumped 2.02%, while steelmaker POSCO Holdings rallied 8.39% on hopes for benefits from the US Inflation Reduction Act.

* Korea Electric Power Corp dropped 4.66% after the government postponed its decision on new electricity prices for the second quarter.

* Of the total 937 issues traded, 482 shares rose.

* Foreigners were net buyers of shares worth 513.6 billion won (USD 394.83 million), scooped up 6.86 trillion won worth of local stocks in the first quarter – the biggest in 9-1/2 years.

* The won ended onshore trade at 1,301.9 per dollar, 0.22% lower than its previous close at 1,299.0.

* The currency ended the week down 0.58%, but rose 1.59% for the month. For the quarter, it lost 2.87%.

* The most liquid three-year Korean treasury bond yield rose by 2.4 basis points to 3.264%, while the benchmark 10-year yield rose by 2.7 basis points to 3.330%.

(Reporting by Jihoon Lee; Editing by Nivedita Bhattacharjee)

Dollar/rupee premiums to rise as US-India interest rate gap seen widening

MUMBAI, March 29 (Reuters) – Indian foreign exchange traders are betting on a rise in dollar/rupee forward premiums as US interest rates are expected to ease later this year, bankers and analysts said.

The USD/INR 1-year implied yield is forecast to rise to 3% levels within fiscal 2024 from around 2.40% currently, according to market participants.

The 1-year implied yield is down about 140 basis points (bps) over the last 12 months.

Forward premiums, a function of US and India interest rate differentials, are expected to widen as the Federal Reserve is likely to ease rates gradually this year, while the Reserve Bank of India keeps them steady, economists said.

Fed futures suggest the US central bank is likely to cut rates by about 60 bps from its peak this year. At the height of worries over the US banking sector earlier this month, nearly 100 bps of rate cuts were priced in.

“USD/INR 1-year forward premium yield could go to 3%. For that we would need at least two rate cuts from the Fed,” said Anindya Banerjee, head of research – FX and interest rates at Kotak Securities.

The market is pricing in two to three rate cuts by December as generally when the Fed starts the process, it cuts rates quite fast because they are doing so in a crisis, Banerjee said.

Far forwards have been getting paid lately due to these Fed expectations, said a chief forex dealer at a public sector bank. From trading near 2.20% earlier in March, the 1-year yield has firmed to as much as 2.50%.

“The yield curve, which is currently flat, will steepen as the fiscal year progresses,” the trader said.

According to traders, the Fed rate cuts would also improve the outlook for inflows into Indian markets, and the RBI “at some point” could step in to limit the rupee’s appreciation.

This provides another reason to pay forwards, an interest rate trader at a large foreign bank said.

The RBI has in recent months bought dollars when the rupee rallied, to likely shore up its reserves.

To avoid the impact of its spot intervention on rupee liquidity, the central bank has been paying or doing sell/buy swaps in the forwards market, pushing premiums higher, according to traders.

(Reporting by Anushka Trivedi and Nimesh Vora; Editing by Sohini Goswami)

Nikkei gains to post best week in two months amid weaker yen

TOKYO, March 31 (Reuters) – Japan’s Nikkei share average rose on Friday — the last trading day of the country’s fiscal year — and posted its best week in two months, as easing banking crisis concerns and a weaker yen bolstered investor sentiment.

However, the benchmark index ended well shy of the day’s highs as shippers tumbled for a second day after going ex-dividend. Investors were also loath to chase the market higher ahead of potentially key US inflation data due later in the day.

The Nikkei finished the day up 0.93% at 28,041.48, staying above the psychological 28,000-mark. In early trading, it had pushed as high as 28,124.62, a 1.23% rally, and 342 points above the previous close.

For the week, the Nikkei rallied 2.4%, the most since Jan. 27. It jumped 7.46% over the quarter, the best performance since the end of 2020.

The broader Topix ended 1.02% higher at 2,003.50, after topping the 2,000-mark for the first time since March 13. It has advanced 2.46% this week, also the most in two months.

“Worries about the health of the financial system have, for now at least, receded, although clearly there are still worries about what will happen with deposits,” said Kazuo Kamitani, a strategist at Nomura Securities.

Kamitani added that he expects the Nikkei to continue its upward trend over the coming week.

The Tokyo Stock Exchange’s (TSE) banking index gained 1.19% and securities firms added 1.21%, putting them among the top performing of the Tokyo Stock Exchange’s 33 industry groups.

Transport equipment, including currency-sensitive automakers, rallied 1.7%.

Mitsui & Co was the best individual performer by far, surging 7.61% after a report in the Nikkei newspaper that the trading company is considering raising its total return ratio.

At the other end, shippers, tumbled 4.87% to be the worst performers by a large margin.

(Reporting by Kevin Buckland; Editing by Sonia Cheema and Uttaresh Venkateshwaran)

Oil down with market uncertain over US inflation, employment data

BEIJING, March 31 (Reuters) – Oil prices ticked down in Asian trade on Friday as bullish sentiment about Chinese demand and potential Middle Eastern supply disruptions was tempered by uncertainty over US economic data to be released later in the day.

Brent futures, which have risen nearly 6% this week, were down 33 cents, or -0.42%, at USD 78.94 a barrel at 0630 GMT. US West Texas Intermediate (WTI) crude fell by 22 cents, or –0.3%, to USD 74.15, having gained about 8% this week.

Markets are now waiting for US spending and inflation data on Friday and the resulting impact on the US dollar.

“The market may maintain its rebound if today’s US PCE offers positive signals to the markets that US inflation is expected to cool further,” said Tina Teng, an analyst at CMC Markets in Auckland.

“Disappointing data may cause concerns about Fed policy again and cap the recent gains,” she added.

Prices have ticked up this week over optimism surrounding China’s economic recovery. China’s manufacturing activity rose in March at a slower pace compared with a record-breaking expansion in February, but still exceeded expectations by economists in a Reuters poll.

Industrial activity in China has become a key determinant of prices in recent weeks after its ending of coronavirus-related restrictions, amid weaker global demand.

Oil prices are set to cap a second straight week of gains after the largest bank failure after the 2008 financial crisis spooked traders and roiled markets. Worries about a full-blown global banking crisis have abated after two banks, in the US and Europe, were rescued.

Prices rose more than 1% on Thursday because of lower US crude stockpiles and a halt to exports from Iraq’s Kurdistan region, offseting pressure from a smaller-than-expected cut to Russian supplies.

Producers have shut in or reduced output at several oilfields in the semi-autonomous Kurdistan region of northern Iraq following a halt to the northern export pipeline. More outages are on the horizon.

The US Energy Information Administration said US crude oil stockpiles fell unexpectedly in the week to March 24 to a two-year low.

(Reporting by Sudarshan Varadhan and Andrew Hayley; Editing by Muralikumar Anantharaman and Gerry Doyle)

How a massive options trade by a JP Morgan fund can move markets

March 30 (Reuters) – A nearly USD 15 billion JP Morgan fund is expected to reset its options positions on Friday, potentially adding to equity volatility at the end of a strong quarter for US stocks.

Analysts have in the past pointed to the JPMorgan Hedged Equity Fund’s quarterly reset roiling markets and see it as a source of potential volatility during Friday’s session.

WHAT IS THE JP MORGAN HEDGED EQUITY FUND?

The JPMorgan Hedged Equity Fund holds a basket of S&P 500 stocks along with options on the benchmark index and resets hedges once a quarter. The fund, which had about USD 14.71 billion in assets as of March 29, aims to let investors benefit from equity market gains while limiting their exposure to declines.

For the year, the fund was up 5.71% through March 29, compared with a 5.35% rise for the S&P 500 Total return Index.

The fund’s assets ballooned in recent years, as investors sought protection from the sort of wild swings that rocked markets in the wake of the COVID-19 outbreak in March 2020.

Its holdings include some of the market’s biggest names, such as Apple Inc (AAPL), Microsoft Corp (MSFT) and Amazon.com Inc (AMZN).

HOW DOES THE FUND USE OPTIONS?

The fund uses an options strategy that seeks to protect investors if the S&P 500 falls between 5% and 20%, while allowing them to take advantage of any market gains in the average range of 3.5-5.5%.

On Dec. 30, the refresh of the fund’s options positions involved about 125,000 S&P 500 options contracts in all, including S&P 500 puts at strike prices USD 3,060 and USD 3,600 and calls at USD 4,065, all for the March 31 expiry.

HOW CAN THIS AFFECT THE BROADER MARKET?

Options dealers – typically big financial institutions that facilitate trading but seek to remain market-neutral – take the other side of the fund’s options trades.

To minimize their own risk, they typically buy or sell stock futures, depending on the direction of the market’s move. Such trading related to dealer hedging has the potential to influence the broader market, especially if done in size, as is the case for the JPM trade.

While the trade is well known and anticipated by most market participants, it can exacerbate daily stock market moves, especially during times of poor market liquidity, analysts say.

Massive S&P options trade may have roiled US stocks on Thursday.

(Reporting by Saqib Iqbal Ahmed in New York; Editing by Ira Iosebashvili and Matthew Lewis)

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