Blackstone Executive Vice Chairman Tony James says he's less optimistic now than before that the U.S.-China trade war could be resolved, but even a smaller deal could help...World Economyread more
The massive market transformation this month that some on Wall Street called a "once in a decade opportunity" might have just been a one-off technical move because of taxes.Marketsread more
The Pentagon will deploy U.S. forces to the Middle East on the heels of the attack on Saudi Arabian oil facilities, United States Secretary of Defense Mark Esper announced...Defenseread more
CNBC did a deep dive through the most recent Wall Street research to find stocks that analysts say are underappreciated.Marketsread more
Shares of MasterCard are up 46% this year, and 1120% since 2011, getting a boost from the strong U.S. consumer.Investingread more
CNBC sat in on an "empathy training" at Amazon PillPack's Somerville offices, which is part of new hire orientation.Technologyread more
Trade with China is the 'big unknown' for the Federal Reserve as it decides how best to support the U.S. economy, says Council on Foreign Relations Director of International...Futures Nowread more
Lobbying experts said the visit is likely an attempt to be in lawmakers' ears as they consider legislation that would impact Facebook.Technologyread more
Yardeni Research's Edward Yardeni believes the U.S. economy is picking up steam.Trading Nationread more
Iran's audacious drone and cruise missile attack on Saudi Arabia's oil producing facilities has provided a critical test yet for the Trump administration's foreign policy. A...Politicsread more
Bond vigilantes are poised to wrest back power in 2018. For the first time in four years, the U.S., Japanese, euro zone and UK governments will together issue more net debt than their central banks will buy. That gives investors a welcome chance to hold profligates to account. But markets may be prone to over-reaction as money managers rediscover their rusty powers of discernment.
Combined net debt issuance by these so-called G4 economies will total $1.3 trillion, up by a third from the projected issuance for 2017, according to Morgan Stanley. The increase in supply will coincide with a decline in demand from central banks, which are expected to reduce their combined bond purchases. That makes for a watershed year in which net issuance will exceed official purchases of debt.
Bond prices will respond. In the past couple of years, buying by central bankers dwarfed issuance, on a net basis, and drove down yields, sometimes into negative territory. About 43 percent of outstanding European government bonds and 60 percent of Japanese ones were yielding less than zero at the end of October, according to Tradeweb.
Investors who wanted better returns have been forced to buy longer-dated or riskier debt, and venture into other markets. Liquid assets, such as equities, were bid up by what Citi analysts dubbed bond "refugees". So were illiquid alternatives such as infrastructure and private equity funds. As the balance between the supply and official purchases of government debt flips, investors may return to their natural comfort zone.
More from Breakingviews: America loses its regional-bank champion
If all goes well, that shift will be gradual and bond yields will rebound slowly. That's not a given. Say corporate defaults were to rise markedly. Authorities have dampened sensitivity to these risks for so long that investors may over-react when confronted with them. Price swings will be further amplified if asset managers find themselves stuck in illiquid markets during a broader sell-off. Those who cannot bail out of their riskiest holdings may be forced to sell less risky but more liquid bonds.
Bond prices have been getting less volatile for several years. When valuations are less driven by central banks, that will no longer be the case. A necessary shift, to be sure, but one likely to create some unsettling market moves.
This is a Breakingviews prediction for 2018. To see more Breakingviews commentary, click here.