Norway Twists The Knife on Treasuries: 3-Minutes MLIV
Speakers
Guy Johnson
— Anchor, Bloomberg
Paul Dobson
— Executive Editor, Bloomberg
Summary
The discussion covers the yen's sharp move and potential for further short-covering, Norway's sovereign wealth fund signaling a shift from Treasuries into corporate bonds, and the Fed's focus on inflation data over payrolls.
- Guy Johnson sees yen momentum as capable of resuming if USD/JPY breaks below 155, forcing yen short capitulation.
- JPMorgan estimates roughly $100 billion of yen shorts existed, with carry trades already being unwound via options.
- Paul Dobson highlights Norway's sovereign wealth fund considering lower government-debt exposure and higher corporate-bond exposure.
- The Norway reallocation is seen as part of broader declining appetite for government bonds.
- The panel says Fed officials are comfortable with the labor market and more worried about inflation.
- Next week's CPI and PPI are viewed as more important than the upcoming payrolls report.
Ideas
Yen strength could force short capitulation.
After the sharp yen move, the market is taking stock but momentum could quickly resume. A move below the prior intervention lows and below 155 could force more capitulation because JPMorgan estimates around $100 billion of yen shorts remain and carry trades are already being unwound through the options market. The trade depends more on the BOJ than on US data.
Norway shifts from Treasuries to corporate bonds.
The Norwegian sovereign wealth fund is looking to scale back its government-debt holdings, especially US Treasuries, and shift toward corporate bonds and other bond markets. The fund believes it can take on more risk while keeping the same liquidity, and there is a broader declining appetite for government bonds as investors seek more yield or equities.
Norway shifts from Treasuries to corporate bonds.
The Norwegian sovereign wealth fund is looking to scale back its government-debt holdings, especially US Treasuries, and shift toward corporate bonds and other bond markets. The fund believes it can take on more risk while keeping the same liquidity, and there is a broader declining appetite for government bonds as investors seek more yield or equities.
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Speakers: Guy Johnson, Paul Dobson · Tickers: USD/JPY, TLT, LQD