August 10, 2016
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Mid-Week Bond Update: Out of Japan
Emerging Markets rallied over the past five trading days, supported by waning prospects of a US rate hike and a weakening US dollar. Expectations of higher US rates changed following a disappointing 1.2% second-quarter growth rate, which helped drag down the greenback against most developed market currencies. The US dollar, however, strengthened against commodity exporters such as Colombia, Russia and Mexico, as they suffered from the continuous slide of oil – the West Texas Intermediate (WTI) contract traded under US$40 per barrel for the first time since April. Japan experienced its worst bond sell-off in three years as investors fear the central bank can’t do more to reignite growth and inflation, following years and billions of yen in trying to do so. In Europe, banks suffered despite a generally positive regional Stress Test report on concerns that some institutions still need to raise capital. Europe’s inflation expectations fell.
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