Posts Tagged ‘AUDJPY’

Risk Makes a Comeback

June 14th, 2010 Michael McDonough Comments off

Investors are feeling more at ease with the uncertainty facing global market.  The AUD/JPY exchange rate—a popular FX carry trade and risk metric—has moved off of its recent lows of less than 74 to a level of 79.4.  At the same time, 3M LIBOR halted its climb, and has remained fairly steady around 0.54%, albeit still more than double early March levels.  Investors growing appetite for risk partially stems from a successful Spanish three year government bond auction last week, which received a surprisingly strong bid to cover of 2.1, while still yielding an elevated 3.3%–compared to less than 2% for bonds of a similar duration in March.  Spain is scheduled to reopen EUR3.5bn of 10Y and 30Y bonds on June 17th.  With a relatively quiet week on the data front—barring the auctions in Spain and a European summit on Thursday—traders will likely continue adding on risk, pushing European spreads down; US Treasury yields up, all boding well for growth correlated assets, including equities.   

Source: Bloomberg

Categories: Europe, US Tags: , , , ,

Traders Lack Conviction in the Market

May 19th, 2010 Michael McDonough Comments off

The prevailing trend across trading floors this morning is a rare lack of conviction.  One contact said, “It is silent here, everyone is just sitting staring at their screens, no one has any convictions”.   This loss in confidence could lead to oversized reactions—volatility—to breaking news; especially further negative developments in Europe.  The VIX Index, which measures the implied volatility of the S&P500, is approaching its recent high experienced in the wake of May 6th’s ‘flash crash’.  Additionally, investors continue to remove risk from the table preferring the safety of US Treasuries (with 10Y yields now yielding less than 3.4%).  The AUDJPY exchange rate is at its lowest levels since early 2010, this currency carry trade acts as a real-time gauge on investors risk appetite (see chart). 

Source: Bloomberg

Categories: US Tags: ,