SerpApi.Org
1557 ET – Treasury’s fell sending yields higher, concluding a day of light U.S. economic data ahead of the Federal Reserve’s interest rate meeting next week. Brent crude futures added 2% to settle above $90 a barrel. Meanwhile, President Trump imposed an additional 50% tariff on certain goods from Canada-including wine, hockey sticks and cement, the White House announced Monday. The White House says the tariffs were a response to the country’s “discriminatory treatment of American products.” The 2-year yield rose to 4.261%. The 10 year-yield rose to 4.628%. ([email protected])
Treasury Yields, Dollar Steady as Mideast Peace Hopes Linger Despite Tension
1002 GMT – U.S. Treasury yields and the dollar trade steady amid hopes that diplomatic talks between the U.S. and Iran could be revived and a ceasefire put in place, Kudo.com’s Konstantinos Chrysikos says in a note. “Progress on that front would limit the demand for safe-haven assets, weighing on the greenback,” he says. However, falls in the dollar and Treasury yields could remain limited after Yemen’s Iran-aligned Houthi movement declared a naval blockade on Saudi Arabia. Meanwhile, military operations continue in the region and disruptions to maritime traffic persist, Chrysikos says. The 10-year U.S. Treasury yield is steady at 4.598%, according to Tradeweb. The DXY dollar index is stable at 100.926. ([email protected])
Outlook for European Gov’t Bonds Remains Constructive as Inflation Normalizes
1100 GMT – The outlook for European government bonds remains constructive, Payden Global SIM SpA’s Antonella Manganelli says in a note. Although the geopolitical tensions in the Middle East have brought volatility back to energy markets, the rise in oil prices appears contained for now and does not alter the scenario of a gradual normalization of inflation in the euro area, the CEO says. This backdrop continues to favor intermediate maturities particularly—those between five and ten years—which offer the best balance between yield and risk, she says. “One note of caution remains, however: the greater financing needs linked to investment in defence and the energy transition could limit any further decline in yields, especially on longer maturities.” ([email protected])
Ten-Year Italy-Germany Government-Bond Yield Spread Could Tighten
0957 GMT – The spread between 10-year Italian and German government bonds—currently 82 basis points, according to LSEG—could tighten as Italian yields could come down during the summer season when there is less issuance, Generali Asset Management’s Mauro Valle says in a note. The spread is at an appealing level to trade, the head of fixed income says. “In absolute terms the 10-year BTP is close to the 4.0% level and the summer seasonality is usually supportive [due to lower issuance].” However, Italian bonds face risks from geopolitical events and energy prices, he says. ([email protected])
Eurozone Bond Yields Edge Higher as Middle East Hostilities Continue
0647 GMT – Eurozone government bond yields edge higher in opening trade as renewed military hostilities in the Middle East raise the prospect of oil supply disruptions again. Since Europe is a net energy importer, delivery bottlenecks could be inflationary, resulting in a risk of rising bond yields. Oil price volatility was also reflected in global bond yields Monday, and “we expect that the volatility will continue as the war continues,” Danske Bank’s Kristoffer Kjaer Lomholt says in a note. The 10-year German Bund yield is up 0.5 basis points at 3.150%, according to LSEG. ([email protected])
U.S. Two- to 10-Year Treasury Curve Seen Flattening Further Near Term
0610 GMT – The spread between 10-year and two-year Treasury yields is expected to narrow further over the coming months, potentially leading to an inversion, Capital Economics’ James Reilly says in a note. “We think that continued escalation in the Strait of Hormuz could lead to the curve inverting outright,” the senior markets economist says. The flattening has been driven by real yields amid a surge in two-year real yields. “We expect the 2s10s curve to flatten in the coming months as investors’ rate expectations rise further,” he says. The yield spread between the 10-year and two-year maturities is currently 39 basis points, compared with 72 basis points at the beginning of the year, according to Tradeweb. ([email protected])
Gilt Yields Steady Following Jobs, Public Finances Data
0724 GMT – Yields on U.K. government bonds, or gilts, stay steady after weaker-than-expected jobs data, which could reduce prospects of the Bank of England increasing interest rates. Payrolled employees fell by 4,000 in the three months to May, even as the unemployment rate stayed unchanged at 4.9%, below the 5.0% consensus forecast by economists in a WSJ survey. The data show “a still fragile jobs markets,” Deutsche Bank’s Sanjay Raja says in a note. Other data also showed improvements in public finances, with public sector borrowing for June at 16 billion pounds, 33.1% lower than the same period a year ago. Ten-year gilt yields are little changed at 5.030%, Tradeweb data show. ([email protected])
Germany’s October 2031 Bobl Launch to Be Gauged for Demand
0553 GMT – Germany’s launch of new October 2031-dated federal notes, or Bobl, on Tuesday deserves special attention after tepid demand seen at the last new 10-year Bund and new two-year Schatz auctions, Commerzbank’s Hauke Siemssen says in a note. The roll is quoted close to 2.5 basis points, and the new Bobl thus seems “rather cheap,” the rates strategist says. This argues for better demand at the upcoming 6 billion euros auction, he says. As for Bunds, despite this rather challenging market environment, the recent ranges in Bund yields have held for now, Siemssen adds. ([email protected])
U.S. Treasury Yields Decline Slightly
0544 GMT – U.S. Treasury yields edge lower in line as oil prices decline slightly even as the Middle East conflict does not abate. Following the collapse of the U.S.-Iran Memorandum of Understanding for peace, “the conflict now largely revolves around control of the Strait of Hormuz,” SEB’s Maya Westerlund says in a note. However, the risk is a more prolonged stalemate, with continued uncertain energy flows, higher oil prices and recurring attacks, she says. The two-year Treasury yield falls 1.3 bps to 4.200%, while the 10-year yield declines 0.6 bps to 4.591%, according to Tradeweb. ([email protected])
Bar Likely High for More Selloff in Front-End Eurozone Government Bonds
0529 GMT – The bar for a further selloff in eurozone front-end government bonds is high, as market expectations of more than two further 25-basis-point rate hikes by the European Central Bank over the next 12 months are already priced in, Mediolanum International Funds’ Niall Scanlon says in a note. “The front end has already repriced materially on the renewed inflation risk,” the fixed-income portfolio manager says. The main risk to that view is a governing council that leans harder on gas-driven inflation than Mediolanum anticipates, Scanlon says. At this week’s meeting, Mediolanum expects ECB President Christine Lagarde to reaffirm the commitment to the 2% target and flag upside inflation risks from energy, while stopping short of fully endorsing the additional tightening the market has priced. ([email protected])
JGBs Fall, Tracking Declines in U.S. Treasurys
0009 GMT — JGBs fall in the early Tokyo session, tracking overnight price declines in U.S. Treasurys. Both JGBs and Treasurys tend to move in tandem. JGB prices are also likely to be weighed by the recent rise in crude oil prices, which could lead to higher inflation in Japan and a quicker pace of BOJ rate increases. Meanwhile, ongoing net supply of JGBs remains high and Japanese economy is robust overall, Citi Research’s Tomohisa Fujiki says in a recent research report. “We see no particular reason to aggressively buy bonds,” the rates strategist adds. 10-year JGB yield rises 2 bps to 2.725%. ([email protected])
