January 2016


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Yields on global bonds fell in January as two well-known themes continued; extreme volatility in the Chinese share market and a savage sell off in oil prices. The sell-off in the Shanghai composite index was brutal, falling 7% two days running and triggering the market circuit breaker which ceases trading for the day. By the third day the Chinese authorities has abandoned the circuit breaker altogether. Oil fell sharply to USD$26 a barrel before recovering late in the month to around USD$33.50.


There were three other standout events in global bonds in January:

  1. The US Fed, after raising interest rates in December, left rates on hold in January. Volatility in global markets was a major factor in that decision.
  2. The ECB president Mario Draghi indicated that the ECB is considering further stimulus measures as inflation fell below the ECB target.
  3. The Bank of Japan shocked markets late in January by implementing a three-tiered system for excess deposits with the central bank. The system included negative interest rates for the first time in Japanese history.


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Japanese bonds moved from 23bps to 9bps on the BoJ news and have since fallen further. German bonds in January fell from 0.63% to 0.32% over the month, French 10 year bonds went from 0.99% to 0.64% and US 10 year bonds dropped 35bps from 2.27% to 1.92%.