Investors flock fixed maturity funds on lofty yields, economic concerns

SINGAPORE, Sept 2 (Reuters) – Fixed maturity funds are drawing some of their heaviest flows since the pandemic started as investors, nervous about the global outlook, seek to lock in income at some of the most attractive yields in years.

Such funds, which bundle corporate and government bonds of similar maturities, drew nearly USD 3 billion between May and July, according to Refinitiv data, marking three straight months of net inflows.

While preliminary data showed about USD 1 billion of net outflows in August, money managers sound confident that the heavy outflows of 2021 and early 2022 are reversing.

Yield is the primary drawcard and it has increased as central banks around the world have lifted interest rates to tame rising inflation.

Fixed maturity funds are also considered relatively safe as they offer a predictable income stream over a fixed horizon and a diversified portfolio which reduces credit risk.

With US dollar investment grade yields at about 4.8% on three-year debt, compared with three-year Treasuries at 3.5%, investors feel the price is right.

“Inflationary pressures and recent Fed moves have finally put an end to an extended period of declining interest rates, putting interest rates nearer to the higher end within the last decade since the Global Financial Crisis,” said Doreen Saik, a senior credit analyst at global fund manager M&G Investments in Singapore.

“Coupled with a weaker macro and credit outlook and a clear Fed path, we have seen a flight to quality in IG fixed maturity funds, which are relatively more attractive vis-a-vis other asset classes.”

Turmoil in stock markets – with world shares and emerging market shares each down about 20% this year – also makes a decent steady income more alluring.

“I think as we move into the current interest rate environment, we could possibly see more fixed maturity products offered to investors,” said Benny Gay, Vontobel Asset Management’s Asia head of intermediary clients.

“Investors could get yields that are more attractive than two years ago,” he added.

“STRONG CASE”

Part of the reason investors wish to lock in yields now is that they could fall in future if inflation slows down, of which there are some tentative signs in the United States.

Of course that is not yet clear and there are no such signs in Europe yet — so both runaway inflation and the likelihood that any economic slowdown could lead to companies defaulting on their debt present risks to fixed maturity funds.

Still, the flows suggest a degree of comfort.

“You can create a portfolio of higher quality and shorter duration,” said Marcelo Assalin, head of emerging markets debt at asset manager William Blair who has noticed an uptick in client enquiries about fixed maturity funds, especially in Asia.

“The critical thing is to run a diversified portfolio with concentration to a minimum and there’s a strong case for that type of product now,” he said.

For most, that has meant buying into bundles of global bonds though there are some willing to take on more risk in Asia’s emerging markets, where some managers expect a rally once markets price a stable peak for US rate expectations.

“We … see value outside of China in both investment grade and high yield following the recent sell off,” said Luke Chua, senior investment manager at Pictet Asset Management’s emerging corporate bonds team.

“When US Treasuries stabilise, we can rebound here.”

(Reporting by Rae Wee; Additional Reporting by Tom Westbrook and Gaurav Dogra in Bengaluru; Editing by Ana Nicolaci da Costa)

Dollar near two-decade high ahead of US jobs data

LONDON, Sept 2 (Reuters) – The dollar was headed for its third weekly gain in a row and was near two-decade highs against other major currencies, as investors focused on US jobs data due later on Friday that could bolster the case for aggressive interest rate hikes.

The US currency has been riding high since Federal Reserve Chair Jerome Powell said at the Jackson Hole symposium in Wyoming last Friday that rates would need to be high “for some time” to combat inflation.

The dollar index – which tracks the currency against six counterparts – leapt to a fresh 20-year high on Thursday of 109.99, bolstered by robust US data showing a fall in unemployment claims.

The index came off the boil in early European trading hours on Friday, slipping 0.2% to 109.43. However, the index is still on track for around a 0.5% weekly gain.

US non-farm payrolls data will be closely watched, analysts said. Economists expect 300,000 jobs were added in August, which would extend a strong run of data.

“We would have to see clearer signs of an economic downturn in the US with the addition of more cautious comments on the part of the Fed to end the USD rally,” You-Na Park-Heger, currency analyst at Commerzbank, said in a note.

Fed funds futures are pricing about a 75% chance that the Fed hikes rates by 75 bps this month and it has been a week of heavy selling in the US Treasury market.

The moves have supported the dollar’s march on the yen in particular, since Japan’s yields are anchored near zero.

The dollar surged above JPY 140 for the first time since 1998 on Thursday, and the yen fell to a fresh trough of 140.43 on the day. It was last broadly flat at 140.275.

Japan’s government will take “appropriate” action as needed, Japanese finance minister Shun Suzuki said on Friday.

The euro retraced some of the previous day’s losses against the dollar and inched back towards parity, up a third of a percent to USD 0.99780.

The European Central Bank is due to meet next week, with money markets betting on an unprecedented 75 basis point hike.

Sterling was broadly flat on the day versus the dollar at $1.15520 and remains down around 1.5% this week.

(Reporting by Iain Withers, Additional reporting by Tom Westbrook in Singapore; editing by Philippa Fletcher)

Philippine c.bank chief says 6.5% GDP growth this year “doable”

MANILA, Sept 2 (Reuters) – Growth of 6.5% in Philippine gross domestic product remains “doable” this year, with the economy likely to be supported as the government resists re-imposing pandemic lockdowns, its central bank governor told Reuters at a virtual Newsmaker event on Friday.

Bangko Sentral ng Pilipinas Governor Felipe Medalla also said Philippine inflation was expected to decelerate in the second half of 2023.

(Reporting by Karen Lema and Neil Jerome Morales; Editing by Martin Petty)

Euro zone bond yields near two-month highs ahead of US jobs data

Sept 2 (Reuters) – Euro zone bond yields held near two-month highs on Friday ahead of US jobs data that kept market focus squarely on inflation.

A Reuters poll expects the US economy will have added 300,000 jobs in August, down from the 528,000 in July that had come as an upward surprise, and a slight decline in average earnings on a monthly basis.

“The market’s probably expecting a fairly strong set of labour market numbers from the data we already have out this week,” said Peter McCallum, rates strategist at Mizuho in London.

US money markets currently price in over a 70% chance of a 75 bps Fed move this month. Another strong labour market print would cement expectations for the 75 bps move.

In the euro zone, bond yields edged lower from two-month highs reached on Thursday. Germany’s 10-year yield, the benchmark for the bloc, was up around 2 basis points (bps) to 1.59%, after rising to 1.63% on Thursday, the highest since end-June.

“I think we’re going to be range-bound in outright yields until the ECB meeting,” McCallum at Mizuho said.

“In Europe it’s more a story about the market viewing things as more fairly priced given how much has been factored in for the ECB meeting,” he added.

Italy’s 10-year yield was up 6 bps to 3.94%, after a brief rise above 4% on Thursday.

The closely-watched spread to German peers was at 235 bps, after rising to 243 bps on Thursday, when it neared levels at which the ECB first promised its new tool, now called the Transmission Protection Instrument, to contain large divergences between member states’ borrowing costs it sees as unwarranted.

The bloc’s bond yields have delivered a third week of sharp rises this week as investors sharply raised their bets on a large 75 bps rate hike from the ECB at its policy meeting next Thursday following hawkish rhetoric from policymakers and another higher-than-expected rise in August inflation.

Money markets price in around an 80% chance of a 75 bps hike at the meeting, levels similar to Thursday, according to Refinitiv data, compared to less than 50% last Friday.

BNP Paribas became the latest bank to revise its call for a 75 bps move next week.

(Reporting by Yoruk Bahceli; Editing by Angus MacSwan)

Gold firms as dollar softens, but on track for third weekly fall

Sept 2 (Reuters) – Gold prices rose on Friday as the dollar pulled back from recent peaks, but the precious metal faces a third consecutive weekly loss on bets that the Federal Reserve will retain its aggressive rate-hike stance.

Spot gold rose 0.4% to USD 1,702.49 per ounce, but was down about 2% for the week so far.

US gold futures were up 0.3% at USD 1,714.80.

The dollar index dipped 0.2% but was not far from a 20-year peak scaled in the previous session as investors awaited US labour data, that might influence expectations for US interest rates.

Weaker-than-expected data could temper expectations for higher rates and at least temporarily take some of the selling pressure off gold, said Stephen Innes, managing partner at SPI Asset Management.

For now, “the market is still really playing on a higher-for-longer USinterest rate narrative,” he said.

Market expectations are for the data to show 300,000 jobs were added in August, which could signal persistent strength in the labour market, which would reinforce expectations that the Fed will opt for a 75-basis-point rate hike this month.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits fell to a two-month low last week, while layoffs dropped in August.

While surveys showed US manufacturing grew steadily last month, factory activity in China, the euro zone and Britain fell, fanning concerns over a slowdown.

“Although China is struggling with COVID-19, there is no safe-haven demand… Safe-haven demand is going dollar’s way,” said Jigar Trivedi, senior analyst currency and commodity analyst at Mumbai-based Reliance Securities.

“Decline is seen in investment demand also… Holdings at the SPDR Gold Trust was around 1,006 tonnes at the beginning of August and are now at 973 tonnes.”

Even though gold is seen as a hedge against inflation and economic uncertainties, higher interest rates increase the opportunity cost of holding the bullion.

Spot silver rose 0.5% to USD 17.94 per ounce, platinum gained 0.3% to USD 830.80 and palladium climbed 1.6% to USD 2,045.47. They were also headed for a third consecutive weekly fall.

(Reporting by Eileen Soreng in Bengaluru; Editing by Rashmi Aich, Uttaresh.V & Simon Cameron-Moore)

S&P 500 snaps four-session losing streak with payrolls on deck

NEW YORK, Sept 1 (Reuters) – A late rally helped the S&P 500 snap a four-session losing skid on Thursday with investor focus turning to a key report on the labor market on Friday.

Stocks had been solidly lower for most of the session, after data showed weekly jobless claims fell more than expected to a two-month low last week and layoffs dropped in August, giving the Fed a cushion to continue raising rates to slow the labor market. Investors now await the monthly nonfarm payrolls report on Friday for more evidence on the labor market.

Economists polled by Reuters see a jobs increase of 300,000, while Wells Fargo economist Jay Bryson revised his forecast for nonfarm payrolls to 375,000 from 325,000 and Morgan Stanley economist Ellen Zentner expects August payrolls of 350,000.

“Today’s market is about tomorrow morning. You’ve got a market that is oversold … and a catalyst for a rally or at least not to sell off would be a weaker employment report especially with regard to wages,” said Quincy Krosby, chief global strategist for LPL Financial in Charlotte, North Carolina.

“The market is as data-dependent as the Fed. It’s going to be on guard for every data release that could suggest when the Fed could be closer to finishing.”

The S&P managed to bounce in the latter stages of trading after hitting a low of 3,903.65, near what some analysts see as a strong support level for stocks at 3,900.

The Dow Jones Industrial Average rose 145.99 points, or 0.46%, to 31,656.42; the S&P 500 gained 11.85 points, or 0.30%, to 3,966.85; and the Nasdaq Composite dropped 31.08 points, or 0.26%, to 11,785.13.

The benchmark S&P index has stumbled nearly 6% over the prior four sessions, which began after Fed Chair Jerome Powell signaled on Friday the central bank will remain aggressive raising rates to fight inflation even after consecutive hikes of 75 basis points, a message echoed by other Fed officials in recent days.

Despite the gains, the tone was defensive, with healthcare up 1.65%, and utilities, which gained 1.42%, the leading sectors to the upside.

Weighing on the tech sector, down 0.48%, were chipmakers as the Philadelphia semiconductor index dropped 1.92%, led by a 7.67% tumble in shares of Nvidia (NVDA) as the biggest weight on the S&P 500, and a 2.99% fall in Advanced Micro Devices (AMD) after the United States imposed an export ban on some top AI chips to China.

Other economic data showed a further easing in price pressures, while manufacturing grew steadily in August, thanks to a rebound in employment and new orders.

Traders expect a 73.1% chance of a third straight 75 basis points increase in rates in September and expect it to peak around 3.993% in March 2023.

The expected path of Fed rate hikes has increased worry the central bank could potentially make a policy mistake and raise rates too high, tilting the economy into a recession, even if inflation shows signs of abating.

Investors have also become more concerned about corporate earnings in a rising rate environment that has also stoked a rally in the US dollar. Hormel Foods Corp. (HRL) fell 6.56% after the packaged foods maker cut its full-year profit forecast.

Volume on US exchanges was 11.19 billion shares, compared with the 10.51 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 2.82-to-1 ratio; on Nasdaq, a 1.96-to-1 ratio favored decliners.

The S&P 500 posted one new 52-week high and 35 new lows; the Nasdaq Composite recorded 29 new highs and 356 new lows.

(Reporting by Chuck Mikolajczak; additional reporting by Caroline Valetkevitch; editing by Jonathan Oatis)

Financial conditions noose tightens

The new month has not signalled a new dawn for financial markets, and the noose of tightening financial conditions – a soaring dollar, rising bond yields, aggressive expectations for central bank policy rates – is choking investor sentiment even more.

US manufacturing data was the catalyst for Thursday’s dollar surge to a fresh 20-year high, the two-year US Treasury yield rising above 3.55% for the first time since 2007, and money markets pushing the Fed’s implied ‘terminal rate’ close to 4.0%.

Investors in Asia in particular will have noted the dollar’s rise above 140.00 yen, a new 24-year peak. Given the polar opposite US and Japanese monetary policy stances, few would bet against the dollar soon testing 150 yen for the first time in over 30 years.

Wall Street snapped a four-day losing streak on Thursday, but the pullback was shallow.

Attention will focus squarely on the US non-farm payrolls data for August, and a strong report will likely intensify the view that rates are headed higher for longer.

Economists expect the pace of job growth to slow to 300,000 from over 500,000 in July, and the unemployment rate to hold steady at a historically low 3.5%. Anything in that ballpark could firm up expectations of a third consecutive 75 basis point rate hike later this month.

On the political front, US-China relations could also drag on investor confidence Friday. On top of long-standing tensions over Taiwan, Washington has imposed new restrictions on exports of cutting-edge chips from Nvidia Corp. (NVDA) to China.

Nvidia shares slumped nearly 10% Thursday.

Key developments that should provide more direction to markets on Friday:

S Korea inflation (July)

Japan money supply (Aug)

US jobs report (Aug)

(Reporting by Jamie McGeever in Orlando, Florida; Editing by Andrea Ricci)

Dollar hits 20-year high as data support aggressive Fed

NEW YORK, Sept 1 (Reuters) – The dollar index vaulted to a 20-year high on Thursday, and notched a 24-year peak against the rate-sensitive Japanese yen, after US data showed a resilient economy, giving the Federal Reserve more room to aggressively hike interest rates to quell inflation.

The US currency firmed after a government report showed that the number of Americans filing new claims for unemployment benefits declined further last week, consistent with strong demand for workers and tight labor market conditions.

The report also showed fewer layoffs in August, despite hefty interest rate increases from the Fed to counter decades-high inflation, which have raised the risk of a recession.

Data from the Institute for Supply Management (ISM) showed US manufacturing grew steadily in August as employment and new orders rebounded, while a further easing in price pressures strengthened views that inflation has likely peaked.

“It comes as no surprise that the dollar hit a fresh record high on both safe-haven flows from global economic weakness and as a resilient US economy paves the way for the Fed to remain aggressive,” said Edward Moya, chief market analyst at Oanda.

“King dollar has awoken from a nap and that could spell a lot more pain for the European currencies,” he said.

The US dollar index =USD, which measures the greenback against a basket of six currencies, was up 0.671% at 109.59, at 3:10 p.m. Eastern time (1910 GMT), having earlier touched 109.99, its highest since June 2002.

Expectations for a third straight 75-basis-point US rate hike at the Sept. 20-21 Fed meeting are rising on the back of solid economic data, with Fed funds futures last pointing to around a 77.1% chance of such an increase.

This helped push the yield on benchmark 10-year US Treasuries US10YT=RR to a more than two-month high of 3.297.

The market’s attention will now turn to the August US nonfarm payrolls report, due on Friday, which will be one of the key data points guiding Fed members when they meet later this month.

A strong reading could help the safe-haven dollar attract more demand.

“Even after hitting fresh records, USD strength has scope to extend somewhat further, boosted by the global slowdown and the European energy crunch in particular,” said analysts at Generali Insurance Asset Management.

The euro slid 0.99%, falling back below parity against the dollar to USD 0.9953, while the British pound hit a fresh 2-1/2-year low of USD 1.1501 and was last down around 0.69%.

Manufacturing activity across the euro zone shrank for a second month in August, according to a survey, and while European energy costs have softened slightly this week, they remain at highly elevated levels.

The Japanese yen slid to as low as 140.23 yen per dollar, its softest since 1998. The dollar was last up 0.81% at 140.095 yen.

“The main driver remains rate differentials between Japan and the US, and even today’s price action just follows the overnight move higher in US rates. We think the path ahead is going to depend on how US rates behave,” said Sosuke Nakamura, a strategist at JPMorgan in Tokyo.

The risk-sensitive Australian and New Zealand dollars also sold off as part of the move towards safe haven assets and hit their lowest levels since July.

The Aussie was last down 0.89% at USD 0.67825, and the Kiwi was 0.83% lower at USD 0.6069.

Bitcoin, which also trades in line with risk sentiment, was down 1.17%, trading slightly under USD 20,000.

(Reporting by John McCrank in New York; additional reporting by Kevin Buckland in Tokyo and Rae Wee in Singapore; Editing by Bernadette Baum, Susan Fenton and Jonathan Oatis)

US recap: US payrolls could be EUR/USD breakdown signal

Sept 1 (Reuters) – The dollar index rallied to 20-year highs on Thursday after a cluster of bullish US data that sent Treasury yields sharply higher, but gains were capped after EUR/USD held above August’s 20-year lows.

Euro bulls await Friday’s non-farm payrolls before abandoning hope that a hawkish ECB can keep it aloft.

The US data diminished concerns that Wednesday’s ADP signaled a softening labor market and Fed hawkishness, with Challenger layoffs dropping 21%, and initial jobless claims falling 16,000 more than forecast and ISM manufacturing employment rebounding to its highest since March.

The reports built on Tuesday’s 789,000 beat in July job openings, with 2 job openings for each seeker.

EUR/USD tumbled to a low of 0.9910 on EBS, just above August’s 0.99005 20-year nadir, and was last down about 1%.

Treasury yields rose led by the belly and beyond, with the inverted 2-10-year spread up 4bp.

Two-year bund-Treasury spreads halted their recent rise that was based on expectations that the ECB would step up its fight against record inflation, adding weight to EUR/USD.

Near- or above-forecast US jobs data could allow EUR/USD to break below 0.9900 toward long-term historical support by 0.9600. An unexpectedly weak jobs report could keep EUR/USD aloft ahead of next Thursday’s ECB meeting.

Markets are positioned for 75-bp hikes in the US and euro zone in September, but the terminal ECB rate is projected at 2.25% while 4% is discounted for the Fed.

The ECB probably can’t close the gap as Europe faces an energy crisis nL6N3080C2.

USD/JPY gained 0.87%, making a new 24-year high at 140.225 as surging Treasury yields widened the gap over BOJ-supressed JGB yields. Thursday’s highs breached the 140 target level the market’s been focused on for some time.

US payrolls are key to sustaining the breakout and increasing the distance from Friday’s USD 1 billion of 140 expiries while moving onto the next Fibo target by 144. A close above 140 will carry bullish momentum over into Friday and the long holiday weekend.

Sterling sank 0.7% after recovering slightly from its 1.1499 low and apparent defense against a clear 1.15 break and follow-on dive toward lows from 2016 and 2020 at 1.1491/13, the lowest prices since 1985, with the BoE seen falling behind the inflation-fighting curve.

The Australian dollar fell 0.9% on a combination of USD strength, falling commodity prices on Chinese and global growth concerns and Australia’s tumbling property prices. July’s 0.66825 lows are now just one or two more bad days away.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Gold drops below $1,700 on stronger dollar, rate-hike bets

Sept 1 (Reuters) – Gold prices fell below the key USD 1,700 level on Thursday for the first time since July, as a rising dollar and expectations for aggressive interest rate hikes eroded its appeal.

Spot gold was down 0.8% at USD 1,696.76 per ounce by 13:58 p.m. ET, having dropped to its lowest since July 21 earlier in the session.

US gold futures settled 1% lower at USD 1,709.3.

Gold is considered a safe store of value during times of economic uncertainty, but a higher rate environment tends to take the shine off the asset as it does not pay any interest.

“If the Fed sticks to its inflation mandate and keeps rates elevated and refrains from cutting rates even in a recession, it will not bode well for gold,” said Daniel Ghali, commodity strategist at TD Securities.

“If gold breaks below the USD 1,675 range, we expect substantial selling pressure to emerge.”

Mirroring investors’ sentiment, holdings in the SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, fell to 31,294,673 ounces on Wednesday, the lowest since January.

The dollar index surged to its highest in 20 years, after data showing growth in US manufacturing in August and a dip in Americans filing new claims for unemployment benefits last week gave the Federal Reserve more room to aggressively raise interest rates.

A higher dollar makes bullion more expensive for overseas buyers. US Treasury yields also advanced, increasing the opportunity cost of holding non-yielding bullion.

Spot silver fell 1% to USD 17.99, after hitting its lowest level in more than two years.

Platinum dipped 2.4% to USD 825.61 per ounce while palladium fell 3.5% to USD 2,011.48.

“As we are staring down the barrel of recession, industrial metal prices are particularly vulnerable,” Ghali added.

Asia’s factory activity slumped in August as lockdowns in China and cost pressures continued to hurt businesses, surveys showed.

(Reporting by Ashitha Shivaprasad, Seher Dareen and Rahul Paswan in Bengaluru; Editing by Krishna Chandra Eluri and Vinay Dwivedi)

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