London - Emerging stocks touched new eight-month peaks on Wednesday and dollar bond yield premia versus Treasuries were just off one-year lows amid a worldwide investor dash for higher-return assets.
Expectations of a British interest rate cut this week and additional Japanese stimulus are lifting global equities, while Wall Street has hit record highs as US rate cuts have been priced out for 2016.
While US and German yields have risen off recent lows, Germany's first zero-coupon bond sale reinforces the picture of crushingly low returns on mainstream fixed income.
“There is now an embedded need for large real money investors to extend fixed income duration in their portfolios, which may filter through to ... emerging markets as well,” Citi told clients.
Debt from Poland, South Africa and Mexico, included in the $2 trillion WGBI global bond index, was most likely to see inflows, the bank added.
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Emerging equities rose for the fifth day in a row, having rallied 8 percent from post-Brexit vote lows. The premium demanded by investors to hold sovereign dollar debt over Treasuries widened 3 basis points to 381 bps, just off June 2015 lows.
Average local currency yields also rose slightly after falling to 6.22 percent, the lowest since February 2015 .
Currencies such as the rand, rouble and lira slipped 0.3 percent against the dollar. In Asia, the Malaysian ringgit pared losses after a surprise rate cut - the first in seven years - that should draw foreign cash back into local bonds .
The Chinese onshore yuan firmed off 5-1/2-year lows after a firmer fix and traders cited central bank intervention on offshore yuan markets. Analysts noted authorities had stepped up yuan defense in recent days.
“It looks to us that China's central bank intends to limit the upside of dollar-CNY and dollar-CNH for the time being, as a fast depreciation in CNY could trigger massive short CNY/CNH positions,” Commerzbank told clients.
In Europe, shares in Polish bank Pekao slumped 4 percent after Italy's Unicredit offloaded a 10 percent stake in it and is seen as possibly selling its remaining 40 percent ownership in Pekao.
The zloty tumbled 0.3 percent to the euro.
Neighbouring Hungary's bourse slipped 0.6 percent a day after hitting nine-year highs while bond yields rose slightly after 5-10 bps falls on Tuesday when the central bank announced moves to push banks' cash out of three-month deposits
“The announced changes will likely incentivise banks to park liquidity in short-dated government securities in lieu of the 3-month deposit facility, helping the shorter-dated segment of the rates and bond curves to perform,” Societe Generale said.
Elsewhere, Egyptian stocks surged 2 percent, boosted by continued devaluation expectations despite disappointment caused by the central bank keeping the pound steady at auction on Tuesday.
REUTERS