Safe-haven yen rises as investors assess Credit Suisse rescue
JAPAN’S yen climbed on Monday (Mar 20) as investors reacted nervously to UBS’ cut-price takeover of its beleaguered rival Credit Suisse.
Under the deal, holders of US$17 billion of Credit Suisse Additional Tier-1 (AT1) bonds will be wiped out. That angered some of the holders of the debt, who thought they would be better protected than shareholders, and unnerved investors in other banks’ AT1 bonds.
The yen – long seen as a safe haven at times of stress – rallied as a fall in Asian bank stocks overnight spread to Europe on Monday.
The US dollar slid to its lowest since Feb 10 at 130.55 yen and was last down 0.66 per cent at 130.96.
“The immediate concern now is that AT1 bonds were completely written down, which is contrary to convention because equity holders are supposed to be higher risk than bondholders,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. “That’s disconcerting to a lot of people.”
Europe’s banking stocks index fell almost 6 per cent in early trading but was last down 1.65 per cent as nerves appeared to settle somewhat.
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The euro was up 0.26 per cent against the US dollar at US$1.069, while the British pound was 0.32 per cent higher at US$1.222.
The US dollar rose 0.22 per cent against the Swiss franc to 0.928.
As part of regulators’ efforts to shore up confidence in the global banking system, central banks moved on Sunday to bolster the flow of cash around the world.
The US Federal Reserve (Fed) offered daily currency swaps to ensure banks in Canada, Britain, Japan, Switzerland and the eurozone would have the US dollars needed to operate, echoing actions taken during the Covid crisis of 2020.
Analysts said the sharp drop in US bond yields made the US dollar less attractive and reduced its appeal as a safe-haven asset.
The US dollar index – which measures the currency against six major peers – was down 0.26 per cent at 103.53, following last week’s 0.73 per cent fall.
RBC’s Tan said the yen is “the cleanest safe-haven in FX”, given the fall in US yields.
Yields on 10-year US Treasury notes were down 3 basis points to 3.365 per cent on Monday as investors moved into government bonds, which are seen as safe assets, and bet the Fed would now struggle to raise interest rates much further.
US 10-year yields, which move inversely to prices, stood at a 16-year high of 4.091 per cent at the start of March.
The Fed’s latest rate decision is due on Wednesday and adds an additional layer of uncertainty.
Rates currently stand at 4.5 per cent to 4.75 per cent. Traders now think there’s a 60 per cent chance of no change and a 40 per cent chance of a 25 basis point increase later this week, according to derivative market pricing.
They are positioned for a peak in rates in May at around 4.8 per cent, followed by a steady series of cuts into the end of the year.
“We continue to recommend a short USD/JPY trade, which is benefitting from the pick-up in risk aversion and less favourable financial market conditions,” said Lee Hardman, senior currency analyst at Japanese bank MUFG. To short means to bet on a fall in price.
Australia’s dollar was 0.13 per cent lower at US$0.669. The US dollar slipped 0.17 per cent against its Canadian counterpart to C$1.371.
In cryptocurrencies, bitcoin rose to a nine-month high of US$28,567, last trading 0.87 per cent higher at US$28,291. REUTERS
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