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Wagers on Treasuries Almost Two-Year High on China, Oil

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Published on : Aug 17, 2015

As sloping oil prices sap the overall outlook for the inflation in China, treasuries are expected to be near the highest level in two years as spending is boosted by the wagers. 

China’s made an unexpected decision last week regarding the weakening of its currency. China is the world’s second-largest economy and is constantly struggling to regain momentum. The removal of the sanctions on Iran are anticipated to reduce the crude prices and mull over inflation as investors will be making its first interest-rate increase since 2006. 

While, high concerns due to devaluation in China are leading to a collapse in risk sentiment, the dropping oil prices are weighing down inflation expectations, said Kadota- a foreign-exchange strategist at Barclays Plc, Tokyo. Fall in prices is making it difficult for Treasury yields to grow. 

The yield was a benchmark which changed at 2.19% as of 1:47 in Tokyo and the price of the 2% security due in 2025 August was 98 11/32.   

Many speculators as well as Hedge-fund managers held a total of 47,807 contracts on a bet that 10-year notes are expected to grow, stated CFTC released on Friday. According to their data, net longs increased to 65,642 contracts in July, the highest since May 2013. 

OPEC is expected to boost crude oil production after the international sanctions are removed against Iran.  It will reach to about 33mn barrels/day. 

Futures represents a 50% chance to raise borrowing costs in its next meeting in September. This is based on the assumption that effective fed funds are expected to rise 0.375% after the first increase.  

Nevertheless, markets are focusing on all such events in order to witness any impact to the Fed’s thinking.

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