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1 week ago | 
think.ing.com | James Knightley |Padhraic Garvey |Francesco Pesole
Fed still projecting rate cuts this year Unsurprisingly there was no policy rate change from the Federal Reserve at today’s FOMC meeting. This leaves the Fed funds target rate range at 4.25-4.5%. The accompanying statement adds little, repeating that activity is expanding at a "solid pace" while inflation "remains somewhat elevated". It was a unanimous decision.
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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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1 week ago | 
think.ing.com | Padhraic Garvey
China and Japan have been net sellers for some years now Wednesday’s Treasury International Capital (TIC) data is more anticipated than usual. It covers April, the month that saw 'Liberation day' (2 April), and the subsequent “Pause” in the tariffs (9 April). The period was in fact dominated by a significant sell-off in Treasuries - the 10yr yield rose from a low of 3.85% to 4.6% (from 5 to 9 April). There was lots of talk of foreign selling, as part of a “Sell America” trade.
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1 week ago | 
think.ing.com | Padhraic Garvey
We've morphed to a Buy America Back phase Some months ago, and well before 'Liberation day', we coined the phrase “Sell America Inc.” Post Liberation Day, it became a global thing, at least for a week or so. But since then, we’ve had a period we can only describe as “Buy America Back”. The calming in the generic all-in high yield to back below 7% is a decent metaphor for this. On the day of the tariff pause that yield had topped 8.5%.
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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.
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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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2 weeks ago | 
think.ing.com | James Knightley |Padhraic Garvey
Updated Fed forecasts could suggest just one cut in 2024 The Federal Reserve is widely expected to leave monetary policy unchanged on 18 June. Central Bank officials have suggested they will be patient in assessing the impact of the President’s tariff policy on growth and inflation, implying little prospect of a rate change before September. The key thing to watch will be updated Fed forecasts and whether they continue to point to 50bp of rate cuts both this year and next.
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2 weeks ago | 
think.ing.com | Padhraic Garvey
We’ve moved into calmer waters for market rates. The 10-year Treasury yield has recently tended not to stray too far from 4.5%. In the eurozone, the 10yr Euribor rate has trended around the 2.5% area, and the 10yr Bund yield is broadly flat to this. If we were to map out a case for these rates to fall, we’d point to the rate-cutting tendency ahead as a key component.
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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.
