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1 week ago | 
think.ing.com | Padhraic Garvey |Benjamin Schroeder
Treasury International Capital (TIC) data for April show net selling of US assets by foreigners. It's -$14bn for Total Net TIC flows (includes banking flows) and -$7.8bn for Net Long-Term TIC flows, which is selling of US bonds and equities by foreigners. While this at first glace seems quite poor, bear in mind that months of net selling are not unusual. For example, we saw selling of -$42bn in January Long-Term Flows.
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1 week ago | 
think.ing.com | Padhraic Garvey |Michiel Tukker |Benjamin Schroeder
A juicy element that Chair Powell may be questioned on is the recent suggestion from Senator Cruz that the Fed should not compensate banks for holding (excess) reserves. Traditionally minimum bank reserves were a regulatory requirement that paid zero interest. But, because of the large QE engineered during the GFC, banks had to be compensated at market rate levels for holding more reserves than they really needed.
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2 weeks ago | 
think.ing.com | Padhraic Garvey |Benjamin Schroeder
Another strong auction on Thursday as the 30yr went very well. It saw a negative tail of -1.5bp (simplistically 1.5bp through secondary), and the overall auction metrics were good. This is a further bullish impulse for the bond market, as the mini-bull run continues. Certainly, it remains a tactically bullish Treasury market here. The PPI report helped, too. The 0.1% month-on-month outcome shows a clear containment in prices, at least for now. There is no denying that these headlines are bond bullish.
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3 weeks ago | 
think.ing.com | Francesco Pesole |Benjamin Schroeder |Carsten Brzeski
As of now, the market is eyeing one more cut by the end of the year to a deposit facility rate of 1.75%. There are moderate chances that the ECB could cut further later on. Pricing, however, is mostly driven by sentiment surrounding US-EU trade relations, with tensions having risen again of late. The 9 July deadline to negotiate a deal is approaching fast, with limited progress visible so far.
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1 month ago | 
think.ing.com | Padhraic Garvey |Benjamin Schroeder |Michiel Tukker
US remain rates under upward pressure with the Moody’s downgrade probing 10y US Treasury yields beyond 4.5% again. The widening of Treasury yields versus SOFR swaps and the even more pronounced widening versus Bunds – in the 10y from 184bp to up to 193bp – underscore the domestic nature of the driver. The downgrade last week turned the spotlight back on US fiscal dynamics and the question whether there is any serious intent by politicians to rein in the deficit.
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1 month ago | 
think.ing.com | Padhraic Garvey |Benjamin Schroeder
The break lower in the Treasury 10yr yield (back below 4.5%) makes a degree of sense in light of the PPI (lower than expected) and retail sales (weaker than expected) data. The question is what’s next? Is the dip in PPI inflation the beginning of a trend? Probably not, given the tariff effects to come. And retail sales? Less certain, but probably weaker. Industrial production was also on the weak side. Overall these April data are calming, and Treasuries indeed liked these data.
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1 month ago | 
think.ing.com | Benjamin Schroeder |Michiel Tukker |Padhraic Garvey
US 10yr breaks above 4.5% again Since the weekend agreement with China, we've turned bearish on Treasuries, as the recession risk has been downsized, and there's been a risk-on tone in the risk asset space. Also, we note that mutual funds had been setting short duration strategies over previous weeks, which had not shown up in prior yield movements. So an up-move in yields was overdue.
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1 month ago | 
think.ing.com | Michiel Tukker |Benjamin Schroeder |Padhraic Garvey
A move lower in US rates could overprice the number of Bank of England cuts We think the Bank of England will cut the policy rate by 25bp, and so do markets, with a full cut already priced in. Markets see the chance for a consecutive cut in June at around 50%, but here we disagree. Instead, our economists still sees the BoE sticking to a gradual easing of one cut per quarter. The sharper pricing of markets is mainly a spillover from the global unrest since Trump’s tariff’s announcements.
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1 month ago | 
think.ing.com | Padhraic Garvey |Benjamin Schroeder
We saw a decent US 10yr auction. It (effectively) came through secondary levels by over a basis point. The indirect bid (external official sector driven) at 71.2% was down from last time but still decent. Direct bidders (domestic real money driven) was up to almost 20%. Overall there was less need for dealers to take up the slack, and the consequential cover at 2.6 times was decent.
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2 months ago | 
think.ing.com | Padhraic Garvey |Michiel Tukker |Benjamin Schroeder
A pause for now is good news for the eurozone and the 10Y swap rate is back at levels from before "Liberation Day". The significant rise in UST yields played an important role in this. The front end of the curve still trades at lower rates, reflecting the still-outstanding risks on investors’ minds. Markets are reverting to an ECB landing zone between 1.75-2%, a range which was held for many months previously. But we remain wary that the situation could easily worsen again.
