By Raiko Shareef
Rates markets are shell-shocked this morning, after a vicious collapse in global bond yields.
The US 10-year Treasury yield plunged from 2.20% as far as 1.88%, before snapping back to find a base just above 2.00%. It currently sits at 2.09%.
This was largest single-day move since March 2009.
Yesterday, we noted that Fed Funds Rate hike expectations were being unwound. Today’s moves were a sharp extension of that trade, partly fuelled by weak US retail sales data.
It would be unfair to apportion all the blame on that data point – it was simply the last straw on the camel’s back. Market pricing now shows a 30% chance of a Fed Funds Rate hike in September, down from 46% yesterday, according to Bloomberg.
Against that, yesterday’s moves in the local rates markets were very subdued. NZ swap yields continued to grind lower, as offshore interest to receive (relatively high) NZ rates remains the dominant force.
Yields were down by 3 bps across the curve, with the 2-year swap yield closing at 3.95%.
We very much doubt local data due today (PMI, consumer confidence) will attract any significant attention. Investors will be more mindful of releases that might inform the global outlook.
In that context, the final reading for euro-zone September CPI, US industrial production, the Philly Fed business survey, and the NAHB housing market index will be eyed.
Other news:
* China September CPI +1.6% y/y vs +1.7% exp.
* Germany final September CPI unrevised at +0.8% y/y.
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4 Comments
The US 10-year Treasury yield plunged from 2.20% as far as 1.88%, before snapping back to find a base just above 2.00%. It currently sits at 2.09%.
This was largest single-day move since March 2009.- is a picture is worth a thousand words? - source
But as I noted on Monday,
Leveraged speculators seeking loss reduction hedges force derivative market markers to delta hedge the risk anywhere they can. - witness
In the first 15 minutes of trading the S&P 500 E-Minis traded below the S&P 500 cash index despite a fair basis, according to Bloomberg, of -6.72. This is unheard of and something I have never witnessed in my near fourteen year career on the Street. I can only conclude that many large institutions threw in the towel on the Open in wake of the dislocations in not only stocks but also treasuries - read more
Am I missing something here ? Were these TB's not originally issued by the Fed at ZERO % ?
So 1,88% is a massive gain on Zero .
A bit like shooting ducks in a tunnel , you cant not make money form this AT ANY PRICE
AND what were they expecting , make the world awash with cash with no consequnces ?
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