Equities jitters have helped to steepen curves, though all within prior ranges and a 10y UST yield above 4%. As 10y Bunds richen versus swaps, the swap rate remains near the upper end of its range while the back end is sensitive to Dutch pension fund news. Meanwhile, latest TIC data show decent buying of US assets, including foreign demand for Treasuries
The current risks are towards more ECB easing, but because medium-term risks are tilted to the upside, we think markets will remain firmly anchored around a 1.75% landing zone. In the US, the ultra front end has a tight feel to it, while longer tenor yields have a more loose tendency. We identify some technical factors driving this
US rates are finding bullish signals in second-tier data as the US government shutdown continues. The second-largest Dutch pension fund is showing confidence about its transition date of 1 January 2026, which should help support the 10s30s steepening. Approval from the regulator, however, has not been explicitly communicated yet
Upside surprises in the final US GDP numbers and jobless claims make it difficult for markets to agree on upcoming Fed cuts. A benign PCE reading on Friday won't change that, but payrolls data next week should be more pivotal. Euro rate markets are keen to follow the bearish mood as a stronger dollar reduces disinflationary
It's tough to envisage a hawkish 25bp cut, else why do it in the first place. A dovish 25bp cut is far more likely. If Chair Powell wants to be hawkish, then better to deliver a 50bp cut. Long rates are in a mood to go along with the "rate-cutting ride" and test lower too. But rate cuts plus (likely) rising inflation present an issue for long dates to deal with ahead
Another day, another record high for the S&P 500 on optimism that:
The FOMC minutes seem to be from a different time, pre the payrolls revisions; but can still embolden Powell on Friday. Gilt yields came down on the day of hotter CPI numbers suggesting a possible peak. Having said that, with Autumn Budget discussions kicking off, volatility is likely to remain. Meanwhile, the path for the 10y euro swap rate is still up
CFTC’s data suggest room for a short-term rebound in USDJPY up to around 153
Dollar consolidates weekly gains, NOK and CAD buck trend in G10, AUD and JPY underperform. RUB and BRL excel in EM, intervention lifts TRY from record lows. 2y UST steady at 3.96%, 10y UST on 200dma (4.23%), US HY credit tightens to 314bp. Oil prices bid after US tightens sanctions on Iran, OPEC+ plans new supply cut to compensate for overproduction.
The markets do not really seem to share Donald Trump's indifference to the short-term impact of his policies on the US economy.
The major FX rates have remained relatively stable at the start of this week in contrast to the deepening sell-off in the equity markets. One of the biggest movers yesterday was the Nasdaq composite index which fell sharply by 4.0% and extended its decline since the high in December to almost 14%.
