New year jitters for bond markets as ECB cuts back stimulus

There were New Year jitters for the bond markets as the ECB cut back on stimulus. (AFP)
Updated 02 January 2018
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New year jitters for bond markets as ECB cuts back stimulus

LONDON: Borrowing costs across the euro area shot higher on Tuesday as a cut in monthly ECB asset purchases became a reality, with hawkish comments from a top official and strong data hurting sentiment toward bonds on the first trading day of the year.
Bonds from the bloc’s periphery, the biggest beneficiaries of European Central Bank stimulus, bore the brunt of the selling. Yields in Italy, Spain and Portugal rose 6-10 basis points each, widening the gap over German peers.
But even “core” or top-rated bond markets were left unscathed from the selling pressure, with Germany’s 10-year bond yield hitting two-month highs.
Benoit Coeure, the Frenchman in charge of carrying out the ECB’s bond purchases, sees “a reasonable chance” the 2.55 trillion euro stimulus program will not be extended again when it expires in September, he told a Chinese financial magazine at the weekend.
The comments highlight that the days of extraordinary monetary stimulus are nearing an end given stronger economic conditions and signs of a pick-up in inflation.
Data on Friday showed inflation in Germany, Europe’s biggest economy, hit its highest level in five years in 2017. A survey on Tuesday showed euro zone manufacturers ended 2017 by ramping up activity at the fastest pace in more than two decades.
ECB monthly bond purchases, which have long underpinned bond yields, have fallen to 30 billion euros from 60 billion euros.
That cut in purchases from the start of January, unveiled in October, comes just as investors brace for a hefty month of supply — a potentially powerful headwind for bond markets.
Spain said on Tuesday it will issue bonds worth between 3.5 billion euros and 5 billion euros at a scheduled auction on Thursday.
“While the cut in ECB asset purchases is not a surprise, there is some uncertainty as to how the markets will adjust to this in an unusually heavy month for supply,” said Rainer Guntermann, a rates strategist at Commerzbank in Frankfurt.
“The more hawkish commentary from the ECB is also weighing on markets.”
Germany’s 10-year bond yields rose 2.5 basis points to 0.46 percent, the highest since late October. German 30-year bond yields jumped almost 5 bps to 1.31 percent , their highest since mid-November, before dropping to 1.24 percent by late trading.
In Italy, where borrowing costs rose last week after the president called a general election for March 4, 10-year bond yields extended their rise to a two-month high above 2 percent, going up nearly 10 bps by the afternoon.
That pushed that gap over German equivalents to around 165 bps, its widest since Oct. 19. Spanish and Portuguese bond spreads also widened against Germany in a sign that investors were reducing their exposure to southern European bond markets.
“The widening in peripheral spreads shows that the market is concluding that the recent spread tightening is inconsistent with a more hawkish ECB,” said Peter Chatwell, head of rates strategy at Mizuho.
Analysts said Portuguese five-year bonds were also coming under pressure from expectations of a syndicated bond deal of this maturity next week.
Most other euro zone bond yields were up 2-4 basis points, with trade subdued after Monday’s New Year’s holiday. There was also some caution ahead of the implementation on Jan. 3 of the wide-ranging EU financial markets directive known as MiFID II.


CrowdStrike said to hire Goldman Sachs to lead IPO

Updated 20 October 2018
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CrowdStrike said to hire Goldman Sachs to lead IPO

  • IPO could come in first half of next year
  • CrowdStrike raised $200 million in June

NEW YORK: Cybersecurity software maker CrowdStrike Inc. has hired investment bank Goldman Sachs Group to prepare for an initial public offering that could come in the first half of next year, people familiar with the matter said on Friday.
CrowdStrike is aiming to be valued more than the $3 billion funding round assigned to it earlier this year, the sources added.
CrowdStrike’s IPO plans could still change, the sources cautioned, asking not to be identified because the matter is confidential.
CrowdStrike and Goldman Sachs declined to comment.
Sunnyvale, California-based CrowdStrike raised $200 million in June led by investors General Atlantic, Accel and IVP. Other major backers include CapitalG, an investment arm of Google’s parent company Alphabet Inc. and Warburg Pincus.
CrowdStrike uses artificial intelligence for its Falcon platform to prevent attacks on computers on or off the network.
CrowdStrike is trying to stand out from the hundreds of security startups that have sprouted in recent years, promising next-generation technologies to fight cyber criminals, government spies and hacker activists, who have plagued some of the world’s biggest corporations.
The recent crop of publicly listed cybersecurity companies have had a mixed stock performance. Zscaler Inc. went public in the spring and is trading 125 percent above its IPO price. Tenable Holdings Inc. is worth about 25 percent more than its IPO price. Carbon Black shares have been trading below their IPO price.
CrowdStrike was founded in 2012 by two executives who left security software maker McAfee, including George Kurtz, the startup’s chief executive.