Intraday Market Thoughts

Bond Binge Busts

by Adam Button
Sep 11, 2019 12:29

Rising Treasury yields are telling a story of a market that's rethinking the path of interest rates and the global economy. The US 10-year yield up 10% so far on the week, the biggest weekly percentage move since November 2016--the week of Trump's presidential victory. 4 weeks ago, yields posted the biggest weekly decline since 2012. Euro is the weakest currency ahead of tomorrow's ECB decisions while gold attempts to regain 1500. The long Premium trade in DAX30 was closed with a 620-pt gain. A Treasury auction on Wednesdays will be a test of real demand for bonds. This week's Premium Video (posted for subscribers below) focus on the existing oil & JPY trades & what's next for indices following the DAX trade.

The trend of rising Treasury yields gathered momentum on Wednesday with yields rising about 9 basis points across the curve. That brings the cumulative total to 10-year yields since the lows of last week to more than 30 bps with a yield at 1.74%.

The uniformity of the move across the curve suggests it's less about near-term Fed expectations and more about a falling demand for safety. The market continues to completely price in a Sept 18 FOMC cut with another 25 bps move 60% priced for October.

Yet, the tone around US-China talks continues to improve. The South China Morning Post outlined more details of talks and revealed that officials are circulating a text for a short-term deal on delaying tariffs in exchange for agricultural purchases. That's been floated before but it was coupled with talk on a broader offer of better IP protection and a cut in excess industrial capacity in exchange for dropping complaints about subsidies and reform of state-owned enterprises.

Few in markets believe any deal will last but Trump is difficult to handicap and the situation could easily get better before it gets worse.

That brings us back to bonds. The swan dive in yields began when Trump announced tariffs at the start of August. The 10-year is now nearing the 50% retracement of that move at 1.76%. That's a first level to watch but a bigger one may be the 61.8% level at 1.84%. If that breaks, it would be a sign of a broader rethink rather than a simple retracement. Yen traders are watching rates closely. USDJPY is on the cusp of testing its 100-DMA for the first time since May near 108.19


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