25 Mar 2015
Net Bond outflows from the eurozone overtake net equity inflow – BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, reviews the Balance of Payments data, noting that with the overall net bond outflow amounted to EUR 219bn, greater than the net inflow in equities, for the 12-month period to January.
Key Quotes
“The portfolio rebalancing effect that could explain the capital outflows from Japan is also evident in the euro-zone. The Balance of Payments data for January from the ECB revealed continued notable outflows from euro-zone bond markets. The data showed a large EUR 272bn worth of foreign bond buying by euro-zone investors in the 12-month period to January.”
“With inflows far less than that, the overall net bond outflow totalled EUR 219bn – that was greater than the net inflow on the equity side of EUR 155bn.”
“Given more and more of the debt market is gradually turning to negative yields, we can only see this flow carrying on. That suggests to us that while the monetary divergence driver is now well known in the market, the consequence of that will weigh on the euro for some time yet.”
“In addition to that, it is also worth remembering that in the two-year period following the OMT announcement by the ECB in mid-2012, foreign investors purchased around EUR 900bn worth of euro-zone bonds and equities in circumstances of EUR/USD trending higher. How much of that flow was hedged at the time? Foreign investors’ desire to increase hedge ratios could also weigh on the euro for a considerable period ahead.”
Key Quotes
“The portfolio rebalancing effect that could explain the capital outflows from Japan is also evident in the euro-zone. The Balance of Payments data for January from the ECB revealed continued notable outflows from euro-zone bond markets. The data showed a large EUR 272bn worth of foreign bond buying by euro-zone investors in the 12-month period to January.”
“With inflows far less than that, the overall net bond outflow totalled EUR 219bn – that was greater than the net inflow on the equity side of EUR 155bn.”
“Given more and more of the debt market is gradually turning to negative yields, we can only see this flow carrying on. That suggests to us that while the monetary divergence driver is now well known in the market, the consequence of that will weigh on the euro for some time yet.”
“In addition to that, it is also worth remembering that in the two-year period following the OMT announcement by the ECB in mid-2012, foreign investors purchased around EUR 900bn worth of euro-zone bonds and equities in circumstances of EUR/USD trending higher. How much of that flow was hedged at the time? Foreign investors’ desire to increase hedge ratios could also weigh on the euro for a considerable period ahead.”