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Daily Agenda: Bond Market Sell-off Gains Steam

OPEC projects no near-term increase in oil demand; Spotify expands its war chest as competition with Apple heats up.

A rout in global bond markets remain the focus of inventor concerns this morning, as the yield on ten-year Bunds rose above 1 percent for the first time since September 2014. The rapid decline in Europe’s benchmark sovereign debt market in recent weeks has been a response to both improving fundamentals and inflation expectations. The sell-off is not confined to European markets. U.S. Treasuries have declined rapidly as well, with ten-year yields reaching the highest measure since last October. Signals that investors may be bracing for further selling pressure emerged overnight, as the closely watched PIMCO Total Return Fund holdings were released indicating that the fund cut its Treasury holdings by nearly two thirds in May.

Yen spikes on Kuroda comments. The Japanese yen had a volatile session this morning after comments by Bank of Japan governor Haruhiko Kuroda in which he opined that Japan’s effective exchange rate is very weak. Concerns over a potential shift in policy views sent the yen rallying more than 1.25 percent against the U.S. dollar in reaction.

Industrial production in the U.K. shows upward trend. April industrial production data released today by the U.K. Office for National Statistics was mixed with the headline index beating consensus forecasts at 1.2 percent year-over-year, while the manufacturing specific index fell short of expectations at 0.4 percent higher than April 2014. A surge in oil and gas production was the primary driver of gains.

Reserve Bank of Australia Stevens challenges Canberra to act. In a speech today Reserve Bank of Australia governor Glenn Stevens left the door open for further rate cuts at the bank while chastising the Australian government for failing to make needed infrastructure investments. Stevens also warned that growth was likely to weaken in the second quarter during his comments at a conference in Brisbane.

EU leaders meet over Greek crisis. Although Greek media reported that Prime Minister Alexis Tsipras is expected to meet with German Chancellor Angela Merkel and French President François Hollande privately during the EU summit with Caribbean and Latin American nations in Brussels today, this confab has not been confirmed by sources from other governments participating in the conference. Separately, Athens announced that its creditors have not responded to a three-page proposal submitted earlier in the week. In comments earlier today European Commission Vice President Valdis Dombrovskis stressed that a deal could still be struck in the near term if the Syriza-led government could capitulate on a few sticking points.

Spotify bolsters war chest. Only days after Apple unveiled its new streaming music service, competitor Spotify announced a $115 million investment by Swedish–headquartered phone carrier TeliaSonera that sees the company’s valuation climb to over $8 billion as it seeks to conclude a larger capital raise. Spotify also announced that it plans to expand its media and advertising partnership with TeliaSonera.

Japanese insurer buys U.S. company. Tokio Marine Holdings today announced an agreement to buy Houston–based HCC Insurance Holdings Inc. The deal, valued at $7.5 billion is the largest acquisition by a Japanese insurer on record and is the latest in a string of acquisitions in North America for Tokio Marine. Industry analysts contend note that the valuation of HCC under the deal’s terms, at nearly two times book, is pricey.

OPEC expects no demand increase. The Organization of the Petroleum Exporting Countries issued its monthly oil market report today, with no change in demand forecasts but optimism that oversupply issues would subside in coming months. The report forecasts a reduction in North American production in the latter half of the year as well as prices drive more producers to reduce capacity.

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