-
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.
-
1 week ago | 
think.ing.com | Padhraic Garvey |Michiel Tukker
The conflict in the Middle East is yet another line added to the already long list of uncertainties facing the eurozone. Whilst of itself the direct impact may be limited, the headlines do not help with the recovery of confidence measures. Tuesday will give us the June ZEW surveys from Germany and the broader eurozone, which hopefully shows better numbers than the months before.
-
2 weeks ago | 
think.ing.com | Michiel Tukker |Padhraic Garvey
US CPI and 10yr auction are good enough to prompt some follow-through US consumer price inflation came in benign for May. We had suspected as much, but the outcome was even more benign than we had expected. Two 0.1%’s on the month were super. Almost too low in fact. Annualise those and there is no inflation. But we can’t do that, as tariffs will push consumer prices back up again, well up, all in the coming months. Tough one for the bond market to interpret.
-
2 weeks ago | 
think.ing.com | Padhraic Garvey |Michiel Tukker
US inflation should be fine for May, but it's the path further down the pike that is concerning Tuesday's 3yr US auction tailed, which was a disappointment, but the bigger signal will come from Wednesday's 10yr auction (and then Thursday's 30yr auction). Well ahead of the 10yr auction we'll see the CPI release for May. We think there will be 0.2%'s month-on-month, which are fine. If we kept getting those, inflation would tend to be around 2.5%, which is really very fine.
-
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.
-
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.
-
1 month 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.
-
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.
-
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.
-
2 months 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.
