martes, 10 de abril de 2018

martes, abril 10, 2018

Safe Haven Assets Are Moving Strangely: Why That Should Worry Investors

Turbulent markets roil gold, U.S. Treasurys alongside stocks

By Ira Iosebashvili, Amrith Ramkumar and Daniel Kruger

The dollar has been buoyed by recent turmoil in stocks, but other havens such as U.S. government bonds and gold haven’t behaved as they normally would in times of stress. Photo: jose luis gonzalez/Reuters 


Investments that typically serve as havens in times of stress are moving in strange ways, highlighting the unsettled condition of financial markets as they head into the second quarter.

The dollar and the yen have both strengthened recently, which is typical when investors are looking to unwind risk. But other assets that usually rally for similar flight-to-safety reasons haven’t fared so well. Gold, the Swiss franc and Treasurys have fallen since the Dow Jones Industrial Average slumped 9.4% from its Jan. 26 high.





GOING THEIR OWN WAY
The Japanese yen has strengthened againstthe dollar, while the Swiss franc has grownweaker.

Source: Tullett Prebon


That divergence is confounding analysts and investors. It marks a stark reversal from other recent periods of market disruption in 2011 and late 2015-early 2016. Both those times, the dollar and yen rallied alongside Treasurys and gold when nervous investors flocked to safer assets as stocks fell, according to data from Ned Davis Research.

With many investors intent on paring risk, “the normal correlations you expect to see don’t work so well,” said Said Haidar, head of New York-based Haidar Capital Management, which manages nearly $428 million.

It is the latest sign that financial markets may be navigating uncharted territory as years of central bank stimulus start to wind down while long-dormant volatility returns and borrowing costs rise. Corporate earnings have been strong, but growth and inflation remain tepid and face threats like possible disruptions to global trade.

“The big burning question right now is ‘Where is the safe haven?’ ” said Christopher Stanton, chief investment officer at Sunrise Capital LLC, a California-based firm that manages around $250 million.

Utility and real-estate shares in the S&P 500, popular with investors seeking relative safety because of their dividend payments, have fallen less than the broader index’s 8.1% drop.





NOWHERE TO RUN?
Assets considered safer bets including gold and utilities stocks have fallen despitethe uptick in market volatility.

Source: FactSet



But U.S. government bonds have been less predictable. Yields, which rise as prices fall, hit multiyear highs earlier in 2018 even as stocks tumbled from their peak in January. Then Treasurys rallied, pulling the yield on the benchmark 10-year U.S. Treasury note down from nearly 3%, a level it hasn’t hit since 2013.

For some analysts, the clearest explanation for the divergence is the unwinding of yearslong stimulus policies.

Trillions of dollars in monetary stimulus pumped into the markets by the Federal Reserve, Bank of Japan and European Central Bank over the past few years tended to smooth out volatility and cut short market routs.

“Most of these things performed as expected before, because there were no rate hikes on the horizon,” said Joseph Kalish, chief global macro strategist at Ned Davis Research.


RANGE BOUND
The yield on the 10-year U.S. Treasury note has also stayed in a range over the past month.


Source: Ryan ALM


Expectations of rising rates tend to hurt the value of outstanding bonds issued during periods of lower rates and crimp the performance of assets like gold, which become less attractive to yield-seeking investors when borrowing costs rise.

The market is adjusting from an environment where there was little volatility in 2017 to a resurgence since February, said Quincy Krosby, the chief market strategist at Prudential Financial.

“We were trained by the Fed to buy the dips, and it worked,” Ms. Krosby said. Now that the Fed appears to be intent on raising rates and has called stocks overvalued, “the dip will have to be deeper before investors come in.”

Others point to the unwinding of popular trades in recent weeks.

Some investors had placed outsize bets on more gains in areas such as big technology stocks, while wagering against interest-rate sensitive sectors.

Now they are being forced to cut back their positions in tech, while buying back bonds, as the government increases its scrutiny of Facebook Inc. and other internet firms.

Mr. Haidar of Haidar Capital Management is now betting that prices of government bonds in places like Spain, Italy and New Zealand will rise, as he believes that a mild slowdown in global growth will force central banks around the world to become less hawkish.

Concerns about inflation and growth have hit bonds too. The gap between two- and 10-year Treasury yields recently shrank to its narrowest since 2007, a sign of weakening sentiment about the prospects for long-term growth.

At the same time, fears of a pickup in inflation, which sparked selling in bonds earlier in the year, have ebbed recently and market-based measures of investors’ expectations for price increases have retreated from recent highs.

Inflation poses a threat to the value of government bonds because it erodes the purchasing power of their fixed payments.

“It appears to be a regime shift from last year,” said Christopher Sullivan, a portfolio manager at United Nations Federal Credit Union. “The uncertainty level has compounded exponentially.”

Mr. Sullivan said he had shifted his Treasury holdings into longer-term securities, which benefit from declining expectations for growth and inflation.

The yen has added 2.2% against the dollar since Jan. 26, making it one of the markets’ best performing currencies in 2018. For years, investors have borrowed yen—because Japanese rates are comparatively low—to fund trades in riskier currencies that offer higher yields in a strategy known as a carry trade.

Now, many are selling their riskier assets and buying back yen, giving that currency a boost, said Bac Van Luu, head of currency and fixed-income strategy at Russell Investments.

The Bank of Japan’s effort to boost its economy by keeping the yen cheap has made the currency a better value than the Swiss franc, another safe haven, Mr. Van Luu said.

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