ETF holders draw palladium with lease rate double bond yield
BENGALURU – For all the talk about rising US interest rates damping the allure of precious metals, palladium is proving to be a profitable asset to own.
Borrowers pay holders of palladium 6% to use the metal for a week, data compiled by Bloomberg show. While that’s little changed this year, the lease rate is still more than twice the yield on the ten-year US Treasury.
Consumers of the metal, which is used mostly to curb pollution in gasoline-fuelled vehicles, have turned to the lease market for supply amid shortages that sent prices to a record $1 139.68/oz in the spot market in January. After years of deficits, production of the metal will continue to trail demand in 2018, according to a report from refiner Johnson Matthey.
The lucrative business of leasing palladium has attracted the attention of hedge funds, spurring withdrawals from exchange-traded funds backed by the metal. Holdings in ETFs are near the lowest since 2009, while inventories tracked by the New York Mercantile Exchange have shrunk by more than a fifth in the past six months.
“Fund managers get out of the ETF, take physical ownership of palladium and then they lease it out, so they get paid,” said Miguel Perez-Santalla, sales and marketing manager at precious metal trader Heraeus Metals New York. “The market is not as tight as it was a few months ago, but it’s still tight. If you lease out the metal, you get paid, whereas in the ETF, it costs you money to hold it.”
Palladium for immediate delivery slipped 0.5% to $984.81/oz at 9:29 am. in New York, according to generic Bloomberg pricing. The one-week lease rate was at 5.9887%, up for a third straight day. The yield on the ten-year US Treasury was at 2.8152%.
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