Bond selloff eases but risk gauges flash orange

The recent violent selloff in the $20 trillion U.S. government bond market has eased, but it isn’t over.

Signs of stress are in fact everywhere; they imply that more such episodes of turmoil or “tantrums” as they have become known lie in wait over coming months.

Ten-year Treasury yields, the main reference rate for global borrowing costs, are now around 1.4%, having spiked last week to 1.6%, a whopping 130 basis point rise from March 2020 lows.

The brutal spillover into stock markets shaved $2 trillion last week from the value of global equities, which are trading on exalted valuations following a decade-long rally.

Volatility could return if U.S. economy continues to surpass expectations and President Joe Biden’s $1.9 trillion spending plan says Salman Ahmed, global head of macro at Fidelity International, noting “risks emanating from the impending fiscal dominance that will drive a notch-up in cyclical inflation”.

Here are some indicators that show bond market stress is by no means over:

1/ VIX TO FOLLOW THE MOVE?

The global bond slump boosted the volatility index to near April 2020 highs, but it contrasts with a similar index in the equity market which is trading half of the levels seen in April.

Graphic: MOVE index versis VIX –

Reuters Graphic

2/ WIDENING SPREADS

Signalling more stress for the bond markets is the widening bid-ask spread in U.S. Treasuries, an indicator of shrinking liquidity in the deepest bond market in the world.

Data from Tradeweb, a trading platform, showed wider spreads were a feature across the yield curve, pushing them to their highest levels since the March 2020 pandemic-fuelled selloff.

Graphic: U.S. 5-yr bonds bid-ask yield spread soars –

Reuters Graphic

Graphic: Stress Signals –

Reuters Graphic

3/ EXPLODING TREASURY ETF TURNOVER

A major reason why spreads widened as volatility jumped has been a marked change in the composition of market participants in the bond market in recent years.

Traditional participants like banks have ceded market share to algorithmic trading in major markets with some estimates putting the share of algorithmic trading in U.S. Treasuries at nearly 90% compared to 50% at the start of the decade.

And as the computer-share driven trading models have become more widespread, turnover in futures and exchange traded funds have exploded while volume in cash markets have stagnated.

Graphic: Exploding interest –

Reuters Graphic

4/ NASDAQ-UST, A DEADLY COMBO?

A 60% Nasdaq and 40% US 10 year U.S. bond portfolio showed one of the largest bi-weekly declines since the global financial crisis.

Graphic: Nasdaq and US 10Y 60-40 portfolio sees huge declines –

Reuters Graphic

Biden’s top financial regulatory picks to face scrutiny in Congress

U.S. President Joe Biden’s nominees to head two key financial watchdogs will be questioned by lawmakers on Tuesday on how they plan to tackle racial and income inequality, climate change, fintech regulation, cryptocurrencies, corporate enforcement and other issues.

Gary Gensler, the White House’s nominee to lead the Securities and Exchange Commission (SEC), and Rohit Chopra, nominated to be director of the Consumer Financial Protection Bureau (CFPB), will appear before the Democratic-led Senate Banking Committee.

Progressives see the agencies as key to advancing policy priorities on climate change and social justice and expect the pair, both experienced corporate regulators, to take a tough line on Wall Street. Republicans have criticized Biden for bowing to leftists and have warned that Gensler and Chopra will be divisive if confirmed to the positions.

“These are both going to be key officials setting financial policy for Team Biden. For Gensler, the focus will be on investor protection and how the SEC should respond to GameStop-related market volatility. For Chopra, it will be about his vision for the agency and his enforcement priorities,” said Jaret Seiberg, an analyst at Cowen Washington Research Group.

In prepared remarks posted on Monday, the two nominees vowed to be diligent stewards of the watchdogs without delving into specifics.

As head of the Commodity Futures Trading Commission, Gensler implemented new swaps trading rules created by Congress in 2010 in response to the global financial crisis, developing a reputation as a tough operator willing to stand up to powerful Wall Street interests.

He will join the agency in the wake of January’s social media-fueled trading frenzy in shares of video-game retail firm GameStop Corp and is likely to be grilled on how he will tackle issues raised by the saga. That includes the practice of betting that stocks will fall, or shorting, potential market manipulation on social media, and how retail brokers handle customer orders, analysts said.

Democrats will also likely push Gensler to commit to new corporate disclosures on climate change risks and political spending, and to complete executive compensation curbs. Whether the SEC will take a tougher line on cryptocurrency offerings and investments is also expected to be a focus for lawmakers, analysts said.

WALL STREET-FRIENDLY RULES

Currently a commissioner at the Federal Trade Commission, where he campaigned for tougher consumer privacy and enforcement penalties, Chopra helped establish the CFPB, which was formally launched in 2011.

Democrats will want to know Chopra’s plans for reviving the agency after the Trump administration weakened enforcement and several rules. Republicans are likely to query him on whether the CFPB overstepped its authority in the past.

Chopra will also likely be asked about gaps in minorities’ access to credit, exorbitant lending rates and abusive debt-collection practices, analysts said.

Progressives also want to repeal Wall Street-friendly rules introduced by former President Donald Trump’s regulators and may push Chopra to revisit payday lending and debt-collection rules that they say won’t protect Americans. Gensler may be pressed on reviewing SEC rules governing investment advisers and shareholder voting rights.

“Barring a major meltdown during this hearing, both Gensler and Chopra will be confirmed in the coming weeks and we will begin to see material changes at both the SEC and CFPB,” said Isaac Boltansky, director of policy research at Washington-based Compass Point Research & Trading.

Boeing to build pilotless fighter jets for U.S. and Australian Air Force

Boeing Plane-maker will use a pilotless, fighter-like jet developed in Australia as the basis for its U.S. Air Force Skyborg prototype, an executive at the plane maker said on Tuesday.

The “Loyal Wingman”, the first military aircraft to be designed and manufactured in Australia in more than 50 years, made its first flight on Saturday under the supervision of a Boeing test pilot monitoring it from a ground control station in South Australia.

Boeing’s Loyal Wingman is 38 feet long (11.6 metres), has a 2,000 nautical mile (3,704 km) range and a nose that can be outfitted with various payloads. The plane can also carry weapons and act as a shield to help protect more expensive manned fighter jets.

The U.S. Air Force in December awarded multi-million dollar contracts to Boeing, General Atomics, Aeronautical Systems, Kratos Defense and Security Solutions to produce unmanned aerial prototypes that can team with crewed jets.

“The airpower teaming system is the basis for our Skyborg bid,” Boeing airpower teaming programme director Shane Arnott told reporters. “Obviously the U.S. market is a big market. That is a focus for us, achieving some sort of contract or programme of record in the United States.”

Defence contractors are investing increasingly in autonomous technology as militaries around the world look for cheaper and safer ways to maximise their resources.

Australia, a staunch U.S. ally, is home to Boeing’s largest footprint outside the United States and has vast airspace with relatively low traffic for flight testing.

The Australian government said on Tuesday it would invest a further A$115 million ($89 million) to acquire three more Loyal Wingman aircraft for the Royal Australian Air Force (RAAF) to develop tactics for using the jets with crewed planes, on top of its initial investment of A$40 million.

“Our aim with Boeing is to understand how we can get these aircraft to team with our existing aircraft to be a force multiplier in the future,” RAAF Air-Vice Marshal and head of air force capability Cath Roberts said.

Britain in January signed a GBP 30 million ($42 million) contract with the Belfast unit of Spirit AeroSystems for a similar type of pilotless aircraft to have a trial flight in the next three years.

During the test flight in Australia, the Loyal Wingman took off under its own power before flying a pre-determined route at different speeds and altitudes to verify its functionality and demonstrate the performance of the design.

Arnott said that three Loyal Wingman aircraft would be used for teaming flights this year and that the Australian government’s order would take the number available to six.

Boeing has said up to 16 Loyal Wingman jets could be teamed with a crewed aircraft for missions.

($1 = 1.2900 Australian dollars)

($1 = 0.7200 pounds)

Sarkozy: Former French president sentenced to jail for corruption

Former French President Nicolas Sarkozy and two former associates have been sentenced to three years in jail – two of them suspended – for corruption.

Sarkozy, 66, was found guilty of trying to bribe a magistrate, Gilbert Azibert, by offering a prestigious job in Monaco in return for information about a criminal inquiry into his political party.

Sarkozy’s ex-lawyer Thierry Herzog and Azibert got the same sentence.

In the ruling, the judge said Sarkozy could serve house arrest with an electronic tag. The ex-president is expected to appeal.

It is a legal landmark for post-war France. The only precedent was the trial of Sarkozy’s right-wing predecessor Jacques Chirac, who got a two-year suspended sentence in 2011 for having arranged bogus jobs at Paris City Hall for political allies when he was Paris mayor. Chirac died in 2019.

Prosecutors sought a four-year jail sentence for Sarkozy, half of which would be suspended.

The case centred on conversations between Azibert and Herzog, which were taped by investigators looking into claims that Sarkozy accepted illicit payments from the L’Oreal heiress Liliane Bettencourt for his 2007 presidential campaign.

Sarkozy is also due to go on trial in a separate case, from 17 March to 15 April, which relates to the so-called Bygmalion affair. Sarkozy is accused of having fraudulently overspent in his 2012 presidential campaign. He had served as president since 2007 – but his 2012 re-election bid was unsuccessful.

Nonetheless, he remains popular in right-wing circles, a year away from a presidential election.

Source: BBC

Myanmar coup: Casualties rise as police step up crackdown

A violent crackdown on anti-coup protesters in Myanmar intensified on Sunday with police using live rounds, rubber bullets and tear gas.

Protesters take cover in Yangon
image captionProtesters clash with police in Yangon as the anti-coup rallies continue

Huge protests in cities such as Yangon, Mandalay and Dawei have continued despite the police response.

There are reports of fatalities, although they are difficult to confirm.

The country has been rocked by protests since top government leaders, including Aung San Suu Kyi, were overthrown and detained by the army on 1 February.

Social media footage from Sunday showed protesters running away as police charged at them, makeshift roadblocks being erected, and several people being led away covered in blood.

The police crackdown, which began in earnest on Saturday, was extended as coup leaders sought to quash a largely peaceful civil disobedience campaign that has shown no sign of ending.

What is happening on the ground?

In the largest city, Yangon, police fired bullets after stun grenades and tear gas failed to disperse protesters. Social media images showed blood on the streets as people were helped away by fellow protesters.

A doctor told Reuters one man had died in hospital with a bullet wound to the chest.

The protesters remained defiant, with some setting up barricades.

“If they push us, we’ll rise. If they attack us, we’ll defend. We’ll never kneel down to the military boots,” protester Nyan Win Shein told Reuters.

Another, Amy Kyaw, told AFP: “Police started shooting just as we arrived. They didn’t say a word of warning. Some got injured and some teachers are still hiding in neighbours’ houses.”

Some protesters were herded away in police vans.

In the south-eastern city of Dawei, security forces moved to break up a rally.

Medical staff carry away a wounded protester in Dawei
image captionMedical staff carry away a wounded protester in Dawei

There are reports of live rounds being used. The Dawei Watch media outlet said at least one person was killed and more than a dozen wounded. One emergency worker told Reuters there were three deaths, with many more casualties feared.

Police were also cracking down on a large rally in Mandalay, where police used water cannon and fired into the air.

Protests have continued elsewhere, including the north-eastern town of Lashio.

The number of arrests since the protests began has not been confirmed. The Assistance Association for Political Prisoners monitoring group has put the figure at 850, but hundreds more appear to have been detained this weekend.

Where is Aung San Suu Kyi?

Myanmar’s civilian leader has not been seen in public since she was detained in the capital Nay Pyi Taw as the coup began.

Her supporters and many in the international community have demanded her release and the restoration of the November election result that saw her National League for Democracy party win a landslide.

Ms Suu Kyi is scheduled to face court proceedings on Monday on charges of possessing unregistered walkie-talkies and violating coronavirus rules. But her lawyer says he has been unable to speak to her.

Military leaders justified the seizure of power by alleging widespread fraud in the elections, claims dismissed by the electoral committee.

The coup has been widely condemned outside Myanmar, prompting sanctions against the military and other punitive moves.

2px presentational grey line

Myanmar – the basics

  • Myanmar, also known as Burma, became independent from Britain in 1948. For much of its modern history it has been under military rule
  • Restrictions began loosening from 2010 onwards, leading to free elections in 2015 and the installation of a government led by veteran opposition leader Aung San Suu Kyi the following year
  • In 2017, militants from the Rohingya ethnic group attacked police posts, and Myanmar’s army and local Buddhist mobs responded with a deadly crackdown, reportedly killing thousands of Rohingya. More than half a million Rohingya fled across the border into Bangladesh, and the UN later called it a “textbook example of ethnic cleansing”
Map with Mandalay

Myanmar coup: UN ambassador fired after anti-army speech

Myanmar’s military rulers say they have fired the country’s ambassador to the United Nations after he called for help to remove the army from power.

In an emotional speech, Kyaw Moe Tun said no-one should co-operate with the military until it handed back power to the democratically elected government.

Security forces intensified a crackdown on anti-coup protesters on Saturday.

Local media say dozens were arrested, and that a woman was shot in the city of Monwya. Her condition is not clear.

The country has been rocked by protests since top government leaders, including Aung San Suu Kyi, were overthrown and detained after the army took power on 1 February.

What did the UN ambassador say?

Speaking at the UN General Assembly on Friday, Kyaw Moe Tun urged the international community to use “any means necessary to take action” against the military to help “restore the democracy”, saying he was representing Ms Suu Kyi’s ousted government.

“We need further strongest possible action from the international community to immediately end the military coup, to stop oppressing the innocent people, to return the state power to the people and to restore the democracy,” he said.

The speech was met with applause and Linda Thomas-Greenfield, the new US envoy to the body, was among those praising his remarks as “courageous”.

People react as riot police fire tear gas during a protest against the military coup in Yangon, Myanmar
image captionSaturday saw clashes between protesters and police using tear gas and rubber bullets

In a further show of defiance, Kyaw Moe Tun held up three fingers, a gesture against authoritarian rule that has been adopted by anti-coup protesters in the country.

Myanmar’s state television announced his removal on Saturday, saying he had “betrayed the country and spoken for an unofficial organization which doesn’t represent the country and had abused the power and responsibilities of an ambassador”.

What happened in the country on Saturday? 

Further protests were held in several cities with water cannon reportedly deployed and journalists among dozens detained.

In the main city of Yangon, crowds of protesters were advanced upon by police firing tear gas. Witnesses who spoke to the Reuters news agency said people were arrested and beaten by police, who also reportedly fired into the air, with similar clashes reported in the second city of Mandalay.

Demonstrators move rubbish bins and tires to build barricades during a protest
image captionSome demonstrators built makeshift barricades for protection during protests

A number of local media outlets reported that a woman had been shot at a protest in the central city of Monwya, close to Mandalay. Images and an alleged identity circulated on social media but have not been independently confirmed. 

An ambulance service official later told the Reuters news agency she was in hospital, contradicting other reports she had died. 

A medic in the town told the AFP news agency he had also seen a man “severely injured” in his leg with at least 10 others treated for more minor injuries. Local media there also reported alleged beatings by plainclothes officers. 

Protesters in some places, including Yangon, were seen building makeshift barricades to try and hinder the crackdown against them. 

General Min Aung Hlaing has defended the coup he led, but at least three protesters and one policeman have died so far in violence against it.

According to the Assistance Association for Political Prisoners monitoring group, more than 770 people have been arrested and sentenced since the coup began. 

At least three journalists were detained on Saturday including a photographer from the Associated Press, the AFP news agency reported. 

What is the background to protests? 

Military leaders justified the seizure of power by alleging widespread fraud in November elections, which Ms Suu Kyi’s National League for Democracy (NLD) won in a landslide.

She was placed under house arrest and charged with possessing illegal walkie-talkies and violating the country’s Natural Disaster Law. But there is growing uncertainty about her whereabouts amid reports on an independent news website on Friday that she had been moved to an undisclosed location. 

A lawyer for the 75-year-old ousted leader told Reuters he had also heard she was moved and has been given no access to her ahead of her next hearing.

The army has ordered internet blackouts and also banned social media platforms but demonstrations have continued daily. The coup has been widely condemned outside Myanmar, prompting sanctions against the military and other punitive moves. 

2px presentational grey line

Myanmar – the basics

  • Myanmar, also known as Burma, became independent from Britain in 1948. For much of its modern history it has been under military rule
  • Restrictions began loosening from 2010 onwards, leading to free elections in 2015 and the installation of a government led by veteran opposition leader Aung San Suu Kyi the following year
  • In 2017, militants from the Rohingya ethnic group attacked police posts, and Myanmar’s army and local Buddhist mobs responded with a deadly crackdown, reportedly killing thousands of Rohingya. More than half a million Rohingya fled across the border into Bangladesh, and the UN later called it a “textbook example of ethnic cleansing”
Map with Mandalay

Britain sets out blueprint for fintech after Brexit

Brexit, COVID-19 and overseas competition are challenging fintech’s future, and Britain should act to stay competitive for the sector, a government-backed review said on Friday.

Britain’s departure from the European Union has cut the sector’s access to the world’s biggest single market, making the UK less attractive for fintechs wanting to expand cross-border.

The review headed by Ron Kalifa, former CEO of payments fintech Worldpay, sets out a “strategy and delivery model” that includes a new billion pound start-up fund and fast-tracking work visas for hiring the best talent globally.

“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.

Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.

But Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance all mean the sector’s future in Britain is not assured, the review said.

Britain increasingly needs to represent itself as a strong fintech scale-up destination as well as one for start-ups, it added.

“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.

The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).

“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.

Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.

“It’s a question of knowing who to call when there’s a problem,” Swinburne said.

The review recommends more flexible listing rules for fintechs to catch up with New York.

($1 = 0.7064 pounds)

India unveils tougher rules for social media such as Facebook, Twitter

India announced new rules on Thursday to regulate big social media firms, such as Facebook and Twitter, the latest effort by Prime Minister Narendra Modi’s government to tighten control over Big Tech firms.

The rules come after Twitter ignored orders to drop content on farmers’ protests, fuelling the goverment’s zeal, dating from 2018, to clamp down on material it regards as disinformation or unlawful.

The new measures will require big social media companies to set up a grievance redressal mechanism and appoint executives to coordinate with law enforcement, the government said in a news statement.

The government said the guidelines in its code of digital media ethics were needed to hold social media and other companies accountable for misuse and abuse.

Social media firms should be “more responsible and accountable,” Ravi Shankar Prasad, the minister for information technology, told reporters in outlining the rules.

A detailed version of the guidelines is to be published later and take effect three months after that, the government said. It did not specify the date, however.

Facebook did not immediately respond to a request for comment, while Twitter declined to comment.

On Wednesday, Reuters reported the draft of the rules, which give companies a maximum of 36 hours to remove content after they receive a government or legal order.

Prasad also told reporters the rules would oblige the companies to reveal the originator of a message or posting when asked to do so through a legal order.

Tech firms are coming under tighter scrutiny worldwide. Facebook faced a global backlash last week from publishers and politicians after it blocked news feeds in Australia in a dispute with the government over revenue-sharing.

That prompted last-ditch changes by Australia in a law passed on Thursday to ensure Alphabet Inc’s Google and Facebook Inc pay media companies for content, a step that nations such as Britain and Canada want to follow.

India’s rules will also require video streaming platforms like Netflix and Amazon Prime to classify content into five categories based on users’ age, the government said.

Australia passes law to make Google and Facebook pay for news

Australia has passed a world-first law aimed at making Google and Facebook pay for news content on their platforms.

The news code legislation had been fiercely opposed by the US tech giants. 

Last week Facebook blocked all news content to Australians over the row, but reversed its decision this week after negotiations with the government.

Following those talks, the law passed with new amendments which make it possible for Facebook and Google not to be subject to the code.

However, both companies have now committed to paying lucrative sums to some big Australian publishers outside of the code. These deals have been widely viewed as a compromise by the tech giants.

Australia’s law has been seen as a possible test case for similar regulation in other countries to get payment from digital platforms for news.

The amended legislation was passed in the House of Representatives on Thursday, after earlier going through the Senate.

Facebook and Google argued it “fundamentally” misunderstands how the internet works.

What does the law do?

The law incentivises tech giants and news organisations to negotiate payment deals between themselves. If such talks fail, digital platforms could be dragged into independent arbitrations.

The government argues this prescribes a “fairer” negotiation process between the parties, as it gives news organisations more leverage.

The Australian Competition and Consumer Commission (ACCC) – a market regulator – says publishers have had little negotiating power until now because they are so reliant on tech monopolies like Google and Facebook.

Scott Morrison speaking in parliament
image captionPrime Minister Scott Morrison said his government was not intimidated by the tech firms’ threats

Any dispute over the value of news content would be settled by the arbitrator – something analysts say benefits the news groups.

The code also forces tech platforms to give notice to news publishers of changes to their algorithms.

However, the amended law now requires the government to consider a platform’s existing contributions to journalism – such as commercial deals with publishers – before applying the code to them. 

This means Facebook and Google could escape the arbitration process entirely.

The government also has to give the platform a month’s notice if it is considering applying the code to them.

What do Google and Facebook say?

The tech firms argue they already help news publishers by driving traffic back to news sites from their platforms.

Facebook and Google simply help people find news content in the first place, the platforms say.

Both tech companies lobbied the Australian government to amend the law, while also pursuing contracts with local news companies. 

Google had threatened to withdraw its primary search engine from Australia, but the company recently agreed deals with local media companies including Nine Entertainment and Seven West Media worth an estimated A$60m ($47m; £34m) in total. 

It has also signed a deal for an undisclosed sum with Rupert Murdoch’s News Corporation.

In a statement on Tuesday, Facebook promised to reverse its ban on news content, though Australian news pages remain unavailable.

It has since signed at least one deal – with Seven West Media – and is in talks other Australian news groups.

What happens now?

Facebook’s black-out of Australian news content in past week has triggered harsh criticism, both in Australia and globally. 

The company has admitted it overstepped in also removing over 100 non-news pages, including key health and emergency agencies.

But its powerful action has been interpreted as a warning shot to lawmakers elsewhere – such as in Canada, the UK and the EU – who have expressed interest in Australia’s law. 

As more news readership has shifted online, tech giants have faced calls internationally to pay more for news stories hosted on their platforms.

They have also faced increased scrutiny over their power, including calls for them to do more to combat misinformation and abuse.

China says ready to enhance exchanges with U.S. on trade – Economic front

BEIJING (Reuters) – China is ready to enhance exchanges with the United States on the trade and economic fronts, Wang Wentao, the country’s new commerce minister, said on Wednesday.

He looks forward to working with U.S. colleagues to focus on cooperation and manage differences, Wang told reporters in a news conference.

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