Meltdown

Treasury 10-year yields extended their steepest monthly increase in almost 20 years to top 4% as elevated inflation and rapid central bank tightening drive a global bond rout. The benchmark yield rose to levels last seen in April 2010. Just a day before, the UK government’s long-term borrowing costs soared above 5% for the first time in two decades as investors braced for a flood of bond supply and aggressive rate hikes. That led investors in money markets to bet on four percentage points more of interest-rate hikes by May, which would take the Bank of England’s key rate to 6.25%, the highest since 2001.

Taxing Times

The International Monetary Fund delivered a stinging rebuke of the UK’s new unfunded tax cuts by calling them excessive and in need of revision, adding to criticism of a plan which has sent the pound to a record low. The IMF said that Chancellor Kwasi Kwarteng should use a plan scheduled for release in November to “consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high-income earners.” The Chancellor will meet investment banks on Wednesday as part of his outreach to discuss the government’s growth plans, which have caused turmoil in financial markets.

More Russian Warnings

Russia threatened to cut off the last gas pipeline to Ukraine’s European allies and moved to annex a large chunk of Ukrainian territory amid a string of military setbacks in the seven-month-long war. Moscow prepared to declare landslide victories in the hastily organized “referendums” it held in the territories currently occupied by its forces. The United Nations has condemned the voting as illegal. Russia’s energy conflict with Europe escalated dramatically as three pipelines were wrecked in suspected sabotage and Gazprom warned that the last remaining route to western Europe is at risk.

Can´t Work There

The European Union is considering a German proposal to ban EU nationals from holding high-paying roles in Russian state-owned companies, according to people familiar with the matter. The proposal, if formally presented by the European Commission and backed by all member states, would cast a wide net over EU nationals. As a result, it would likely scoop up former German Chancellor Gerhard Schroeder, said the people who declined to be named on confidential talks. Schroeder is the chairman of the shareholders’ committee of Nord Stream. The measure does not name specific individuals and it would be up to national governments to enforce the restriction.

Coming Up…

European stocks are poised to fall, following losses in Asia on Wednesday as a global bond rout pushed the 10-year Treasury yield to above 4% and the dollar soared. Volkswagen is scheduled to price the IPO of its sports-car unit Porsche. Bank of England Deputy Governor Jon Cunliffe to speak at a conference. Expected data include Swedish, Danish and Irish retail sales, as well as confidence surveys from Germany, France, Sweden and Italy.

—————————————

(Source: Bloomberg, Sept. 28-2022)