The big questions for markets this week

Here are five key questions we are asking at FT Markets as another week beckons.

How much further can the yen appreciate?

A broadly weaker dollar has encouraged the foreign exchange crowd to provoke the Bank of Japan in recent weeks and buy plenty of yen. Inevitably, the BoJ will step in and sell plenty of yen — we have seen this picture many times. But intervention may not occur until the market has pushed the currency a lot firmer. Don’t rule out a test of Y105 before the BoJ acts.

Will the 10-year German Bund yield hit zero?

At a meagre yield 0.10 per cent, the eurozone’s benchmark looms. Just shy of last April’s low of 0.05 per cent — before a rocket-fuelled sell-off — the danger of chasing the Bund rally is clear. Versus the situation a year ago, however, the European Central Bank is buying more bonds in the market and has also cut its overnight lending further into negative territory. So the chances of a lower yield cannot be ruled out. Even the prospect of the Bund joining its Swiss and Japanese 10-year rivals in the negative world beckons.

Will the rally in Emerging Markets endure?

Argentina hits the fixed income road this week, drumming up orders for up to $12bn of bonds in its return to global debt markets after its 2001 default. Are investors really willing to entertain a serial debt defaulter? The answer appears to be yes, and this illustrates how the mood in EM has turned decidedly sunny of late. EM bond funds brought in $2bn in the week to Wednesday, according to data from EPFR and Bank of America Merrill Lynch — the largest inflow since June 2014, and the seventh straight week of gains. Still, plenty depends on the US dollar remaining on the defensive and for further evidence that a bottom has occurred for commodity prices. The clamour for debt, as investors chase higher yields, should not cloud the deteriorating outlook for the latest EM credit cycle.

Is the high-yield market reviving?

Last week brought signs that the drought of new junk bonds may be coming to an end with a sizeable amount printed on both sides of the Atlantic including a $5.2bn bond from French phone company Numericable-SFR which was increased in size from $2.25bn due to high demand. Markets will be looking for whether this window stays open or if it was an opportunistic one-off.

How much capital do the Italian banks need?

The share prices of Italian banks continue to remain volatile. The banks have some of the largest piles of malingering loans in Europe, estimated at €333bn as of June 2014 by the International Monetary Fund. Consolidation and more capital is needed, but the first question leads to a second: who are the investors prepared to commit more money, and at what price?