Market round up: China’s buying Treasuries again, so it’s time to sell
In other news, currency-focused hedge funds big gainers in May; cost optimization to define wind market
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Having liquidated a record amount of US government bonds in 2016 to stabilize its yuan currency and rein in capital flight, China’s central bank is buying again and seen willing to accumulate more. Riding the coat-tails of a $3 trillion giant may be a tempting strategy, but China, and reserve managers as a whole, have historically added Treasuries during periods of rising yields. Besides buying when prices are falling, why is China an anti-cyclical buyer of Treasuries? And why is it a bad idea to pile into bonds simply because China is buying? That’s because currency reserves, where the bonds are held, tend to rise during periods of healthy global growth and during risk-on market environments.
Currency-focused hedge funds big gainers in May
Hedge funds that were focused on currency markets have made the biggest gains in May as volatile currencies drew out risky bets. Among the various HFRI Macro indices, that of currency has gained 3.49% in May while all others have either declined or made meagre gains. The currency index has been a consistent performer since February this year given the political uncertainties in Europe and US President Trump’s unpredictable policy decisions. For the first five months, the HFRI Macro Currency Index has gained more than 8% while gains of other macro indices are nowhere close to this. The commodity index has declined while the diversified index has dropped 0.32%.
Cost optimization to define wind market
The ability of wind energy developers to match the cost savings with tariffs discovered in the auctions will determine the growth profile of the global wind power sector in the coming decade, renewable energy adviser MAKE Consulting said in a note. According to the note, success of the wind energy auctions in Germany and India can drive the global wind power market from the direct incentive-based system to an auction-based mechanism. “These examples (Germany and India) offer hopeful foreshadowing of market realities yet to come in countries like the US, which is undergoing an incentive phase-down and will have to rely on economic merit alone to support additional capacity in the next decade,” said MAKE Consulting.