Investing.com — There has been widespread debate about the sustainability of recent increases in global bond yields, as well as their potential impact on financial markets and economies. 

Although short-term dynamics may support elevated yields, cyclical forces and structural factors indicate that yields will eventually stabilize, as per analysts at BCA Research.

The rise in bond yields, particularly since the first rate cuts by the U.S. Federal Reserve in late 2024, reflects a combination of factors. 

Adjustments in monetary policy expectations have been a major driver, with the market reassessing the trajectory of future rate hikes. 

This realignment has reverberated globally, influencing yields across developed and emerging markets. 

However, the long end of the yield curve has increasingly decoupled from immediate policy expectations, underscoring the growing importance of term premia driven by inflation uncertainty and government funding concerns.

BCA Research notes that much of the recent yield increase can be attributed to risk premia adjustments. 

Countries with current account deficits, such as the United States and the United Kingdom (TADAWUL:4280), have experienced more pronounced increases compared to surplus economies like Germany and Japan. 

This dynamic suggests that investors are factoring in greater fiscal vulnerabilities and the need for external financing, which could exacerbate the volatility in bond markets.

Despite these headwinds, BCA Research maintains a cautiously optimistic outlook for government bonds over the medium term. 

The brokerage flags the self-limiting nature of higher yields, which tend to dampen growth and inflationary pressures. 

Elevated borrowing costs are already straining interest rate-sensitive sectors, such as housing and corporate finance, with signs of reduced activity in mortgage markets and rising refinancing challenges for corporate borrowers. 

These developments align with the broader expectation of slowing economic growth, which is likely to exert downward pressure on yields over time.

Regionally, BCA emphasizes the value in certain government bonds, particularly those from economies with higher risk premia and weaker growth prospects. 

The UK, for example, stands out as an attractive market despite recent yield spikes. Analysts argue that the selloff in UK gilts is fundamentally different from the 2022 mini-budget crisis and reflects broader global dynamics rather than domestic fiscal instability. 

The elevated risk premium in UK bonds, coupled with the cyclical vulnerability of its economy, provides a compelling risk-reward profile.

In the United States, rising inflation uncertainty remains a central theme. The Federal Reserve has signaled heightened concerns about long-term price stability, contributing to the uptick in term premia. 

However, BCA argues that these uncertainties are unlikely to persist indefinitely, particularly as economic growth moderates and inflationary pressures ease. 

This backdrop reinforces the case for maintaining an above-benchmark portfolio duration, favoring high-quality government bonds over corporate debt.

A rise in global bond yields also impacts the broader economy. Rising yields and the strengthening of the U.S. dollar pose challenges for emerging markets whose debt is denominated in dollars. 

Additionally, tighter financial conditions could weigh on global trade and investment flows, amplifying downside risks to growth.

BCA Research advises a defensive positioning in fixed income portfolios, prioritizing duration management and selective exposure to government bonds. 

Despite the possibility of further volatility in the near term, the brokerage stresses the long-term value of bonds, particularly as the economic cycle transitions to slower growth and lower inflation.

Investing.com — The announcement of the Department of Government Efficiency (DOGE), spearheaded by Elon Musk and Vivek Ramaswamy, has drawn public attention and speculation about its potential to transform federal operations. 

However, according to analysts at Barclays (LON:BARC), the scope of DOGE’s influence is likely far more limited than its proponents suggest.

Contrary to its title, DOGE is not a formal government department. Its function is advisory, with no legal or executive powers to enforce its recommendations. 

Without congressional approval or direct legislative support, its capacity is constrained to making suggestions rather than implementing change.

DOGE’s potential actions include highlighting areas of federal inefficiency, such as waste, fraud, and abuse, and proposing improvements to government operations. 

These recommendations could target reducing the federal workforce through measures like voluntary buyouts, early retirements, or temporary hiring freezes. 

The group may also identify federal assets for sale or relocation as a means to cut costs.

However, its actual power to enforce these changes is negligible. For instance, proposals to cut government spending or restructure federal agencies require bipartisan congressional support—a tall order in the current polarized political climate. 

Even identifying and addressing “waste” is no simple task; past efforts by similar commissions have yielded limited results due to legal, logistical, and political barriers.

Congress holds the “power of the purse,” meaning that significant reductions in government spending require legislative approval. 

Although discretionary spending, particularly in defense and non-defense budgets, could theoretically be trimmed, achieving this would demand a level of bipartisan cooperation that seems unlikely. 

Mandatory spending, which constitutes the bulk of federal outlays, is even less susceptible to DOGE’s influence. 

Programs like Social Security and Medicare are politically sensitive and legally protected from unilateral cuts.

Similarly, efforts to deregulate or amend government operations are subject to rigid processes established under the Administrative Procedure Act. 

Regulatory rollbacks would need to navigate a lengthy and often contentious rulemaking or litigation process.

Despite claims from Ramaswamy that DOGE aims to slash the federal workforce by 75%, the feasibility of such a move remains doubtful. 

Most federal employees are protected by civil service laws that prevent arbitrary dismissals. 

Additionally, nearly 70% of the federal workforce operates in defense or national security roles, areas that are politically and practically challenging to downsize. 

Past initiatives for large-scale reductions in the federal workforce have proven ineffective or counterproductive, often resulting in increased costs and reduced operational efficiency.

DOGE’s most tangible contributions might come from identifying opportunities for operational improvements. 

Federal agencies spend significant sums on maintaining outdated IT systems, and upgrading these could generate long-term savings. 

According to the Government Accountability Office, there is potential to save billions through enhanced efficiency measures, though such initiatives would likely require upfront investments and congressional approval.

Ultimately, the analysts at Barclays emphasize that DOGE’s influence is symbolic more than functional. 

It may use its platform to draw attention to inefficiencies and advocate for reforms, but its recommendations will remain non-binding. 

Achieving substantial change will require navigating a complex web of legal and political hurdles that go well beyond DOGE’s advisory remit.

Investing.com — As the United States contemplates a sweeping 25% tariff on imports from Canada and Mexico, the two nations face critical decisions on how to respond to this potential trade shock. 

Analysts at BofA Securities warn that the tariffs, if implemented, could escalate into a full-blown trade war, with significant economic repercussions for all three countries.

The proposed tariffs, expected to be signed into effect on January 20, would target all imports from Canada and Mexico. The U.S. justifies the move as a means of addressing its trade deficits, which are substantial with both neighbors. 

However, the interconnectedness of these economies complicates matters. Approximately 30% of Canada’s GDP and 40% of Mexico’s GDP are tied to trade with the U.S., underscoring the heavy reliance both nations have on their southern neighbor.

BofA analysts flag a critical distinction in the capacity of the Bank of Canada and the Bank of Mexico to mitigate the economic fallout of a trade conflict. 

Both institutions operate under inflation-targeting frameworks but face differing constraints.

The Bank of Canada is positioned to adopt an accommodative stance, potentially cutting interest rates to offset economic stress. 

With Canada’s inflation rate currently at the 2% target and core inflation measures similarly stable, the Bank of Canada has the flexibility to support the economy by easing monetary policy. 

Such action would also weaken the Canadian dollar, helping to cushion the blow to Canadian exports.

Conversely, Mexico’s central bank faces tighter constraints. Headline inflation in Mexico stands at 4%, well above Bank of Mexico’s 3% target, and core inflation remains stubbornly high. 

Long-term inflation expectations are unanchored, further limiting Bank of Mexico’s ability to lower rates. BofA analysts project that Bank of Mexico will proceed cautiously, with modest rate cuts already factored into its 2025 forecast.

While both nations are likely to retaliate with targeted tariffs, the report suggests that avoiding escalation may be more beneficial in the long run. 

Mexico, for instance, has already shown a willingness to align with U.S. demands by imposing its own tariffs on Chinese goods to address concerns about being a conduit for Chinese imports. 

Similarly, both countries have stepped up efforts to tackle U.S. concerns regarding drugs and illegal immigration, key conditions tied to the proposed tariffs.

Although BofA Securities considers the imposition of tariffs unlikely, given these mitigating measures, the risks cannot be ignored. 

For Canada and Mexico, the choice is between measured retaliation and proactive diplomacy to avoid economic disruption. 

For both nations, prioritizing economic stability while safeguarding long-term trade relationships with the U.S. will remain the ultimate challenge.

MUMBAI (Reuters) – India will likely cut its disinvestment and asset monetisation target by 40% for 2024-25 in the federal budget to be presented next month, The Economic Times newspaper reported on Saturday, as planned sales of state-run firms run into a host of setbacks.

The government will likely revise the target to less than 300 billion rupees ($3.47 billion) from the initial 500 billion rupees, the newspaper said, citing people aware of the deliberations.

The government may set the target at about 450 billion rupees to 500 billion rupees for the next fiscal year, as it intends to conclude the IDBI Bank (NS:IDBI) transaction and step up its asset monetisation bid, the report said.

The Finance Ministry did not immediately respond to a Reuters’ email seeking comment.

The Indian government, which owns 45.48% in IDBI Bank, and state-owned Life Insurance (NS:LIFI) Corp of India which holds 49.24%, together plan to sell 60.7% of the lender. The sale process was first announced in 2022.

Prime Minister Narendra Modi’s administration moved from the usual practise of setting a stake sale target in its budget presented last year.

Modi’s ambition of privatising state-run firms has taken a back seat due to regulatory hurdles, complex decision-making, political considerations and valuation issues, but his government has delivered more stake sales than any previous administration.

The government has raised 86.25 billion rupees from disinvestments so far in this fiscal year.

The government will continue to reduce its stakes in some entities via the offer-for-sale route, the report added.

($1 = 86.5710 Indian rupees)

By David Shepardson

WASHINGTON (Reuters) -The outgoing head of the Federal Communications Commission said a massive Chinese-linked cyber-espionage operation against U.S. telecoms firms known as “Salt Typhoon” is a “clarion call” to address significant telecommunications security issues.

“Salt Typhoon is a clarion call that reminds us that the security of our networks is absolutely vital for our national and economic security,” FCC (BME:FCC) Chair Jessica Rosenworcel, who steps down on Monday, said in a Reuters interview.

“We’ve got to make some changes … We have to figure out how it happened. We have to figure out the extent of the incursion, and then, most importantly, we have to take action to make sure it never happens again.”

Senator Ben Ray Lujan, the top Democrat on a telecom subcommittee, said China’s alleged efforts likely represent “the largest telecommunications hack in our nation’s history.”

Verizon (NYSE:VZ) and AT&T (NYSE:T) have said they were impacted by Salt Typhoon but said last month their networks are now secure.

The FCC voted on Thursday to require telecommunications to have cybersecurity risk management plans. Rosenworcel predicted there would be other threats from malicious actors and nation states in the future, and called for more to be done to make the networks more resilient.

Incoming FCC Chair Brendan Carr said the Salt Typhoon attack “represents an unacceptable risk to our national security” but criticized the commission action.

“We should be taking a series of actions that will restore America’s deterrence and harden our networks going forward,” Carr added.

Under Rosenworcel, the FCC has taken steps to crackdown on Chinese telecoms including seeking to boost security of information transmitted across the internet after Washington said a Chinese carrier misrouted traffic. The FCC is also reviewing rules governing undersea cables that carry most internet traffic.

The FCC voted in 2022 to prevent Huawei, ZTE (HK:0763) and other Chinese companies from winning approvals for new telecommunications equipment. Congress in December approved $3.1 billion for U.S. telecom companies to remove equipment made by Huawei and ZTE from American wireless networks.

By Jonathan Stempel

NEW YORK (Reuters) – Federal prosecutors on Friday dropped their corruption case against former New York Lieutenant Governor Brian Benjamin, following the death of a key witness.

Benjamin, 48, had been expected to face trial in Manhattan federal court after being accused of funneling a $50,000 state grant to a real estate developer in exchange for campaign contributions.

But the developer, Gerald Migdol, who pleaded guilty to bribery and fraud charges and was cooperating with the government, died last February.

In a court filing, prosecutors said that based on a review of the evidence and in light of Migdol’s death, “the government has determined that it can no longer prove, beyond a reasonable doubt, the charges in the indictment.”

U.S. District Judge Paul Oetken approved the dismissal request late Friday afternoon.

Benjamin, a Democrat, had faced charges including bribery, honest services wire fraud and conspiracy.

“Today’s vindication of Brian Benjamin is a timely reminder of the Reverend Martin Luther King Jr’s famous words: “The arc of the moral universe is long, but it bends toward justice,’” Benjamin’s lawyers Barry Berke, Dani James and Darren LaVerne said in a joint statement. “We always believed this day would come.”

Migdol had been a real estate developer in Manhattan’s Harlem neighborhood, where Benjamin was once a state senator.

Governor Kathy Hochul, also a Democrat, tapped Benjamin in August 2021 for the state’s No. 2 job, which she had held before succeeding Andrew Cuomo as governor. Benjamin resigned in April 2022 when the criminal charges were announced.

(Reuters) -The U.S. government has awarded Moderna (NASDAQ:MRNA) $590 million to advance the development of its bird flu vaccine, as the country doubles down on efforts to tackle increasing infections in humans.

This is in addition to $176 million awarded by the U.S. Department of Health and Human Services (HHS) last year to complete the late-stage development and testing of a pre-pandemic mRNA-based vaccine against the H5N1 avian influenza.

The award will also support the expansion of clinical studies for up to five additional subtypes of pandemic influenza, Moderna said on Friday.

“Avian flu variants have proven to be particularly unpredictable and dangerous to humans in the past. Accelerating the development of new vaccines will allow us to stay ahead and ensure that Americans have the tools they need to stay safe,” HHS Secretary Xavier Becerra said in a statement.

The drugmaker said it is preparing to advance its experimental shot, mRNA-1018, into late-stage trials based on preliminary data from an early-to-mid stage study and plans to present the data at an upcoming medical meeting.

Shares of the company were up 5% at $35.8 in extended trading on Friday.

The award was made through the Rapid Response Partnership Vehicle (RRPV) Consortium with funding from the U.S. Biomedical Advanced Research and Development Authority.

Nearly 70 people in the U.S., most of them farmworkers, have contracted bird flu since April, as the virus has circulated among poultry flocks and dairy herds.

Most infections in humans have been mild, but one fatality was reported in Louisiana last week.

The risk to the general public from bird flu is low, and there has been no further evidence of person to person spread, according to the U.S. Centers for Disease Control and Prevention.

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said that the government would reach its statutory borrowing limit on Tuesday and would begin employing “extraordinary measures” to keep from breaching the cap and triggering a potential catastrophic default.

Yellen, in a letter on Friday to congressional leaders just three days before the Biden administration turns over U.S. government control to President-elect Donald Trump and his team, said the Treasury would begin using extraordinary measures on Jan. 21.

“The period of time that extraordinary measures may last is subject to considerable uncertainty, including the challenges of forecasting the payments and receipts of the U.S. Government months into the future,” Yellen said in the letter.

Yellen said the Treasury would suspend investments in the civil service retirement and disability fund that are not required to immediately pay benefits.

Yellen had said in late December that the debt cap would likely be reached between Jan. 14 and 23 after Congress opted against including an extension or permanent revocation of the limit in a last-minute budget deal near the end of the year. Trump himself had urged lawmakers to extend or repeal the debt ceiling and later blasted an earlier failure to do so in 2023 as “one of the dumbest political decisions made in years.”

Under that 2023 budget deal, Congress suspended the debt ceiling until Jan. 1, 2025. The U.S. Treasury will be able to pay its bills for several more months, but Congress will have to address the issue at some point next year.

Failure to act could prevent the Treasury from paying its debts. A U.S. debt default would likely have severe economic consequences.

A debt limit is a cap set by Congress on how much money the U.S. government can borrow. Because the government spends more money than it collects in tax revenue, lawmakers need to periodically tackle the issue – a politically difficult task, as many are reluctant to vote for more debt.

The debt ceiling’s history dates back to 1917, when Congress gave the Treasury more borrowing flexibility to finance America’s entry into World War One but with certain limits.

Lawmakers approved the first modern limit on aggregate debt in 1939 at $45 billion, and have approved 103 increases since as spending outran tax revenue. Publicly held debt was 98% of U.S. gross domestic product as of October, compared with 32% in October 2001.

By Manya Saini, Niket Nishant

(Reuters) -A raft of U.S. banks reported higher fourth-quarter profits on Friday, extending a winning streak for the industry as an upswing in capital markets alleviated a hit from weaker loan demand.

Long believed to be the stronghold of Wall Street heavy hitters such as JPMorgan Chase (NYSE:JPM) and Goldman Sachs, investment banking and trading have become increasingly vital for mid-sized banks as a robust dealmaking environment offers lucrative fee prospects.

“Dealmaking is back with a vengeance,” said Danni Hewson, head of financial analysis at AJ Bell.

The boost from investment banking has helped mid-sized banks cushion the blow from lower loan demand as elevated interest rates deter borrowers. 

“If the incoming president follows through on promises for deregulation and lower taxes, the outlook for 2025 will continue to generate a lot of excitement among banking bosses,” Hewson said.

Citizens Financial (NYSE:CFG), Truist Financial (NYSE:TFC), Huntington Bancshares (NASDAQ:HBAN) and Regions Financial (NYSE:RF) all surpassed expectations for quarterly profits, according to data compiled by LSEG, mirroring the stellar results of their bigger peers this week.

There are also expectations that mergers and acquisitions among regional banks will accelerate. Huntington Chairman and CEO Steve Steinour said dealmaking was not a priority, though.

“We’re not a significant acquirer. We may at some point acquire a bank, or even a non-bank, if it strategically helps us, and if it gives us distribution or product capabilities that we don’t have today, but that’s not our prime priority,” Steinour said in an interview.

Truist shares were last up nearly 5% on Friday, while Huntington stock was flat after rising 1% before markets opened.  

On Thursday, U.S. Bancorp (BVMF:USBC34) and M&T Bank (NYSE:MTB) also posted higher fourth-quarter profits, driven by higher fee income. 

‘TRUMP BUMP’

Analysts predict the investment banking sector will see a “Trump bump” under the new administration due to corporate tax cuts and relaxed regulatory oversight that could increase executives’ confidence to pursue deals.

A series of rate cuts by the Federal Reserve has also cemented the resilience of the U.S. economy, though some are worried that President-elect Trump’s tariff proposals could lead to a spike in inflation.

“Questions may abound about how long the run can last and whether Donald Trump’s form of isolationism will be a boon or a curse, but as a host of Wall Street banks delivered robust and even record-breaking profits, no one is really thinking about the answers just yet,” Hewson added.

Still, loans and leases at Citizens, Truist and Regions fell and could remain depressed unless rates are lowered further.

The Fed, however, has projected fewer rate cuts this year than previously expected. Inflation data released earlier this week, which showed that U.S. consumer prices increased by the most in nine months in December, could reinforce that view.

By David Lawder

WASHINGTON (Reuters) – The Congressional Budget Office on Friday forecast a $1.865 trillion U.S. budget deficit for fiscal 2025, largely flat with last year and indicating no major deterioration in government finances before President-elect Donald Trump takes office on Monday.

The CBO “baseline” estimates are based on current laws and assume that Trump’s 2017 individual tax cuts expire as scheduled at the end of this year, causing rates to snap back to higher levels.

Efforts by Trump and Republicans in Congress to extend current individual and small business tax rates could add over $4 trillion to deficits over 10 years if not offset with savings elsewhere. Other tax breaks promised by Trump, such as exempting Social Security, tip and overtime income from taxation, could add more debt.

The CBO data shows that deficits decline slightly to $1.687 trillion, or 5.2% of GDP in fiscal 2027 before gradually rising to $2.637 trillion, or 6.5% of GDP in 2033. The 2026-2035 cumulative deficit is estimated at $21.758 trillion, or 5.8% of GDP.

The CBO’s fiscal 2025 deficit, which equates to 6.2% of GDP, is about $73 billion lower than the non-partisan budget referee agency’s previous forecast for that year in June 2024.

CBO Director Phillip Swagel said the slight improvement in the near-term outlook was largely due to higher revenue projections linked to upward revisions of the CBO’s benchmark estimates of the overall size of the U.S. economy.

“The jumping off point for the size of the economy was higher,” Swagel told reporters. “So even though our economic forecast is reasonably similar to what we had before, the higher jumping off point for the nominal GDP means that there’s more revenue coming in.”

The CBO forecast a slightly slower U.S. economic growth rate, at 1.9% for 2025, compared to 2.0% in the June forecasts, with growth averaging 1.9% over the 2024-2034 window.

NO ‘SUDDEN STOP’

Trump’s pick to lead the U.S. Treasury Department, hedge fund manager Scott Bessent, told senators on Thursday that failure to extend expiring tax cuts this year would cause a massive tax increase that would be an “economic calamity” and cause a “sudden stop” to U.S. growth.

But the CBO forecasts show no abrupt drop-off in U.S. output, with 2025 real GDP growth falling to 1.9% from an estimated 2.3% in 2024, measured on a fourth quarter-to-fourth quarter basis. Growth then hovers at about 1.8% for the rest of the decade, with an average of 1.9% over the 10-year budget window.

Swagel said the steady forecasts reflect an assumption that the Federal Reserve would step in to ease monetary policy, counteracting some of the consumer spending drag from the tax hikes. He also said under CBO assumptions, individuals and businesses will not react immediately on Dec. 31, and will make changes to adjust to the higher tax rates over several years.

The new forecasts also incorporate a much higher cost estimate of $825 billion over the next decade for clean energy tax subsidies associated with President Joe Biden’s signature Inflation Reduction Act. That compares to a $270 billion estimate when the legislation was passed in 2022 and a revised $428 billion 10-year estimate a year ago.

The clean energy subsidies are a key target for Republican budget cutters after Trump takes office on Monday, and Bessent said in his Treasury confirmation hearing that the tax break costs for electric vehicles, battery production, solar power and other sources were “wildly out of control.”

Swagel told reporters that higher cost estimates are due in part to a different budget window, 2025-2035, compared to 2022-2031 when the legislation was first approved. Costs also were higher because of subsequent rule changes that increased the uptake of electric vehicle subsidies, including a leasing provision and new tailpipe emissions standards for internal combustion cars, he said.