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2 weeks 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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3 weeks 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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3 weeks ago | 
think.ing.com | Michiel Tukker |Padhraic Garvey
US Treasuries under rising yield pressure Despite the tariff roller-coaster of the past six weeks, we’ve ultimately landed in a place where the prior macro worries have now been materially lowered. Given that, we latch back on to an elevated inflation / fiscal deficit combination that can worry Treasuries and mute rate-cut expectations.
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1 month ago | 
think.ing.com | Padhraic Garvey |Michiel Tukker
The Bank of England made its cut, as was already widely expected, but the communication did not offer the dovish flavour markets were looking for. Sterling rates had turned more dovish in the wake of 'Liberation Day' and followed US rates lower. The script of the Bank, however, did not move away from its “gradual and careful” approach and the baseline therefore remains cuts at a quarterly pace. Markets still price in a 25% rate cut at the June meeting, but we think the next cut will have to wait.
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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 |Michiel Tukker
US 2yr auction not great, and contains some evidence of reduced official interest in Treasuries The US 2yr auction tailed, by 0.5bp. Effectively a concession to secondary, but not a dramatic concession. What is interesting is the tepid indirect bid, which saw a 56% takedown. That may sound like a lot, but it's well below the 6mth average at 73%. The interesting thing about the indirect bid is it a barometer of central bank interest, and may be indicative of less official foreign demand.
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1 month 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.
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1 month ago | 
think.ing.com | Padhraic Garvey |Benjamin Schroeder |Michiel Tukker
Whilst Dutch pension funds feel the pain from lower equity prices, the coalition party NSC is still trying to change the rules of the current reforms. In the latest proposal, each pension fund would no longer be required to obtain a vote of approval before transitioning from a defined benefits system to a defined contributions system. Instead, pension funds would have to offer the participants the possibility to opt-out from the transition of his or her assets to the new system.
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2 months ago | 
think.ing.com | Padhraic Garvey |Benjamin Schroeder |Michiel Tukker
Dollar exposure's getting pushed and pulled in a still whippy market We make the argumentation for the US 10yr to break down to 3.5% here, and why it's likely to revert then higher again. Beyond that, there are three factors to latch on to. The first is the fall in breakeven inflation. This was unexpected, as tariffs are generally accepted as placing upward pressure on prices, even if the debate as to whether it's inflationary is not settled.
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2 months ago | 
think.ing.com | Michiel Tukker |Padhraic Garvey
Markets clearly not pleased and rates impact is complex Markets did not like the list of tariffs Trump presented yesterday, and the numbers appear worse than feared. The S&P 500 futures are down more than 2% from Wednesday's open and the UST 10Y yield came down from 4.20% to just above 4%. European markets saw the STOXX futures down 2.5% this morning, while the 10Y Bund future points to a 9bp drop in yields.
