Base Metals Consolidate as US Treasury Yields Plunge and UK Offers First RMB-Denominated Bond

SHANGHAI, Oct. 20 (SMM) – The LME’s annual meeting is under way, and trading this week is likely to be muted. SMM expects base metals markets to consolidate near present lows. 

 

Market expectations of a further delay in a Fed rate hike grew as the German economy weakened. US 10-year Treasury yields slumped from 2.19% to 2% in just an hour following the release of disappointing US September retail sales October 15. 10-year Treasury yields bottomed at 1.86% before climbing back to 1.95%. This was the first that 10-year Treasury yields fell below 2% since May 2013, when the Fed first indicated that it would taper QE3 off. European stocks also tumbled. The FTSE Eurofirst 300 Index dropped 3.2%, its biggest single-day loss since late 2011. The recent fall in US Treasury yields is in large part due to rising risk aversion after the IMF lowered its global economic growth forecast. European government bond yields also hit record lows. Yields on 10-year German Bunds slumped to an all-time low of 0.837% October 14. The likelihood that the Fed will slow plans for a rate hike also drove Treasury yields down. The Fed’s upcoming policy meeting at month’s end is thus a prime focus of markets. 

 

The British government offered its first offshore RMB-denominated bond October 15. Initially expected to fetch RMB 3 billion, oversubscription pushed the sale to RMB 5.8 billion. Britain's Chancellor of the Exchequer George Osborne expects the sale of offshore RMB-denominated UK bonds to benefit British taxpayers, not to mention better positioning London as a leading nexus for the next stage of offshore RMB trading. The stronger-than-expected demand for the RMB bond may be in part a result of the RMB’s appreciation against the EUR, GBP and JPY.