Treasuries Decline Will Be Volatile on Stimulus Exit, BIS Says; “With the outstanding volume of government bonds greater than ever, interest-rate risk” is at a record high in most advanced economies

June 3, 2013 Leave a comment

Treasuries Decline Will Be Volatile on Stimulus Exit, BIS Says

Treasuries are set to extend losses and price swings may intensify as growth allows central banks to withdraw stimulus, the Bank for International Settlements said.

“Yields will go up as the economy recovers,” Stephen Cecchetti, economic adviser and head of the monetary and economic department at the BIS in Basel, Switzerland, told reporters on a conference call on May 31. “The ride to normality will almost surely be bumpy, with yields going through calm and volatile periods.”

Benchmark 10-year note yields rose the most since December 2010 last month amid speculation that the Federal Reserve will begin tapering its $85 billion a month bond-buying program. Chairman Ben S. Bernanke said on May 22 that the central bank could cut the pace of its purchases if policy makers see indications of sustained improvement in growth.“Volatility per se is not necessarily bad,” Cecchetti said. “Price movements are an integral part of the price-discovery process in financial markets, especially when we are faced with unprecedented events such as exit from the current unconventional stance of monetary policy.”

Treasury 10-year yields climbed 48 basis points last month to 2.15 percent as of 5:06 p.m. London time on May 31, the most since jumping 50 basis points in December 2010. Volatility, as measured by the Bank of America Merrill Lynch MOVE index, rose to 81.22 on May 29, the highest level in almost a year.

Securities in the bank’s Global Broad Market Index lost 1.4 percent through May 30, headed for the steepest decline since April 2004.

“With the outstanding volume of government bonds greater than ever, interest-rate risk” is at a record high in most advanced economies, Cecchetti said. “These losses will be spread across banks, households and industrial firms. Robust balance sheets with high capital buffers are the best way to guard against the possible disruptions.”

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Jennifer Ryan in London at jryan13@bloomberg.net

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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