Bond Auctions, Volatility In Asia Impacts ETFs

September 08, 2009

Currency and bond ETFs figure to respond to auctions and other recent events in Asia over the weekend.


Action in Asian debt markets over the Labor Day holiday weekend may make for some big impacts in currency and commodity ETFs.

Tuesday, Japanese bonds rose the most in two weeks after a 2.3 trillion yen (U.S. $23.8 billion) auction was oversubscribed by four times as investors sought protection against forecasts of a weak domestic export market in the second half of the year. (See Bloomberg story here.)

Separately, China’s Ministry of Finance said it will debut a 6 billion yuan (U.S. $879 million) sale of yuan-denominated government bonds in Hong Kong in order to promote the “international status” of the Chinese currency. Twelve-month yuan futures contracts climbed 0.3%, to their highest level since the end of July. (See Bloomberg story here.)

Both debt auctions may strengthen prices of yen and yuan ETFs. After reaching around $108 per share, the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) fell back at the end of last week by around 2%. Tuesday’s successful bond auction could reverse the path towards a technical resistance level of $111 in FXY. Traders said that short-term the U.S. dollar would bottom out around 91.50 yen.

In terms of Chinese yuan ETFs, there may be some unusual volatility in the traditionally sober WisdomTree Dreyfus Chinese Yuan Fund (NYSEArca: CYB) and the Market Vectors – Renminbi (NYSEArca: CNY).

Earlier in the year, New York University economist Nouriel Roubini predicted that the Chinese yuan may become the world’s new reserve currency over the next ten years, creating action around these two ETFs. (See story here.)

The big bond sales in part spurred a sharp spike in the price of gold to above $1000-an-ounce. Shares in SPDR Gold Trust (NYSEArca: GLD) were rising 1.2% in pre-market trading to 98.70.

Technical traders in Asia are recommending shorting the gold price when it breaches the $1000-an-ounce level, however.

In a weekly technical research note which correctly predicted Tuesday’s jump over the benchmark level, Martin Marnick, a director at Hong Kong-based Helmsman Global Trading, tells the firm’s hedge fund clients to take advantage of a temporary bump in prices.

“Sell and short above a 1000. A quick pullback below 940 [will ensue] before November, which then recovers,” wrote Marnick.

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