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This week's bottom line...

• The yield on the 10-year Japanese Government Bond (JGB) has increased sharply in the past 6 weeks from 0.45% to over 0.85% in spite of the Bank of Japan’s (BOJ) open-ended purchases of these bonds via its quantitative easing policy.

• The sudden increase in yield may be attributed to rising inflationary expectations suggesting an early degree of success in the central bank’s pledge to end deflation and restore consumer price inflation to a positive 2% annual rate. This scenario is supported by the yield excess of 5 year bonds over equivalent maturity inflation protected bonds which measures the market’s expectation of annual inflation over the period. This so-called “break-even” rate has increased sharply over the same period to around 0.4%.

• While signaling a likely rise in inflation the upward move in bond yields also suggests a shift in asset allocation by investors from bonds into equities, providing a further boost to the strong rally in Japanese equities.

Week in review		Month in review

Local • According to the World Economic Forum’s Global Competitiveness Report: “excessive government bureaucracy and red tape, overregulation, corruption, dishonesty in dealing with public contracts, lack of transparency and trustworthiness, inability to provide appropriate services for the public sector and political dependence of the judicial system” are undermining the level of competitiveness in SA’s business sector. SA slipped to 52nd place in terms of country competitiveness, down from 45th place in 2009. Disappointingly SA ranked 5th worst in the world for the quality of its education system. While conditions appeared to be deteriorating at the macro-level, SA was placed among the best in the world for its strength of auditing and reporting standards, efficacy of corporate boards, protection of minority shareholders’ interests and the soundness of banks. Read more >>
Global • The International Energy Agency’s medium-term market report states that booming US shale oil production will send “shock waves” through the global oil market. According to the report: “The supply shock created by a surge in North American oil production will be as transformative to the market over the next 5 years as was the rise of Chinese demand over the last 15.” Read more >>

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