Yields Higher Ahead of US Fiscal Announcement

Reports say that Biden new stimulus plan is around $2.25 tln; more details later today; Euro area inflation increased in March, but Laggard talks down any risk; Brazil's president Bolsonaro has reshuffled his cabinet towards a more centrist configuration, a short-term positive; Turkish central bank has a new deputy head; the lira remains under pressure; Indonesia's central bank now owns more bonds than offshore investors

• Reports say that Biden new stimulus plan is around $2.25 tln; more details later today
• Euro area inflation increased in March, but Laggard talks down any risk
• Brazil's president Bolsonaro has reshuffled his cabinet towards a more centrist configuration, a short-term positive
• Turkish central bank has a new deputy head; the lira remains under pressure
• Indonesia's central bank now owns more bonds than offshore investors

Global sovereign debt yields are higher, equities lower, and the dollar weaker, but moves have all been modest. The U.S. 10-year Treasury yield is sitting at 1.73%, off its recent highs but not enough to calm markets. Equities are retreating, down 0.3%-1% in Asia, mixed in Europe, and U.S. futures are pointing to a small negative open. Commodity prices are mixed but mostly lower.


Biden will provide details of the new stimulus plan today, and Treasury markets are already preparing for it. According to the Washington Post, the plan is to increase spending by $2.25 tln. The paper indicates spending on infrastructure is still the centerpiece at $650. Yields continue to rise, making a high at 1.77% yesterday before falling back to 1.73% at the time of writing.

Brazil's president Bolsonaro has reshuffled his cabinet towards a more centrist configuration, so short-term positive on net. The changes involve six posts, including the foreign affairs and justice ministers. The move will reduce some of the internal political pressure and allow for greater coordination in congress. But the changes will only materialize as a medium-term positive if they help generate a more credible budget and impose fiscal constraints. With yields in the back end of the swaps curve rising fast, the country desperately needs a fiscal anchor. For now, however, BRL is up marginally, therefore outperforming most other currencies. 

Brazil reports February consolidated budget data today. A primary deficit of -BRL21.8 bln is expected. The commitment to fiscal restraint remains an open question after congress approved the 2021 budget with some creative accounting to skirt the spending cap limit. This has markets gearing up for more aggressive monetary tightening, with a nearly 100 bp hike priced in for the next meeting on May 5 and another 75 bp hike for the meeting after that June 16, according to the Bloomberg model. Central bank President Campos Neto tried to manage market expectations by stressing that the bank has no plans to move to a neutral interest rate. February IP and March trade data will be reported Thursday. IP is expected to rise 1.5% y/y vs. 2.0% in January.


Euro area and German inflation increased in March, but ECB President Laggard talks down any risk. Preliminary CPI came for the euro area came in at 1.3% y/y, just below expectations and much higher than the 0.9% print for February. In Germany, CPI came in at 2.0% y/y, up from 1.6% in February to the highest level in almost two years. But the move was in the headline component with the sharp increase in fuel costs. Unemployment came in at -8K (-3K expected). ECB President Lagarde dismissed the upward pressure in yields saying that markets "can test as much as they want," implying it won't make a difference in the policy stance. The bank will continue its purchases and leaning against higher yields. German 10-year yields have been inching higher over the last four consecutive sessions, moving from -0.35% to -0.27% now.

Changes in the Turkish central bank continue, now with a new deputy head. The new committee member Mustafa Duman is a former executive director at Morgan Stanley. If the move was intended to re-establish credibility after swapping the governor, it failed. The lira is down 0.8% on the day, comfortably above the TRY8 level at TRY8.32 now, after rising for the seventh consecutive session. Rates have also shot higher, with the 10-year swap rate rising from around 14% a couple of weeks ago to over 19% now.


China's March official PMIs came in stronger than expected. The manufacturing component rose further into expansionary territory to 51.9, while the non-manufacturing one jumped from 51.4 in February to 56.3 in March. The data gives us a better picture of the economy without the seasonal impacts of the New Years' holiday, and it shows a clear rebound in activity. Of note, the export component rose from sub-50 to 51.2, and constriction rose to 62.3.

Foreign investor divestment from Indonesia's local bond markets has reached a new milestone: the central bank now owns more bonds than offshore investors. We've been tracking this data since last year's decision by the government to use explicitly use the BI to finance the deficit, and it's been a one-way trend since then. The BI now holds 23.1% of government bonds compared to 22.9% held by foreign investors. After a large uptick late last year, local bank holdings have stabilized around the near 40%. Foreign investors withdrew nearly $1.5 bln from the local bond market in March alone, up from a $1 bln outflow in February. The 10-year sovereign bond yield has risen from 5.8% to 6.8% so far this year, and the rupiah is one of the worst-performing currencies so far, down 3.3% against the dollar.

More from Mind on the Markets

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2021. All rights reserved.

This browser is not fully supported by our public website and may not display or function as expected for this reason. Please note, the Infuse Portal and BBH client applications fully support the IE 11 browser.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction