The S&P500 has stabilised overnight after sustaining heavy falls late in the New York session yesterday.
The 10 year Treasury yield broke below its recent trading range yesterday and the US yield curve flattened its narrowest level since 2007.
After our Report went out yesterday, US equities weakened substantially into the New York close. The NASDAQ, which had already been underperforming the other major US indices on reports that the US had plans restrictions on Chinese investment into US tech, fell 3%, fully erasing the gains from Tuesday. The S&P500 was almost 2% lower.
Overnight, equity markets have shown signs of stabilising; the NASDAQ has recovered from an initial 1.5% fall to be down 0.6% on the day, while the S&P500 is around flat.
Increased regulatory scrutiny on US tech firms in the wake of the Facebook data privacy scandal and uncertainty over the US administration’s trade and investment policy have weighed on the NASDAQ (a popular position in the investment community of late).
Amidst the decline in US equities yesterday, the 10 year Treasury yield broke below 2.80%, the bottom of its recent trading range, triggering some further short covering among speculative investors. It fell to as low as 2.74% overnight, although it has recovered in the last hour to 2.78%, unchanged on the day, after the US Treasury 7 year auction met weak demand.
US 4th quarter GDP was revised up slightly and US home sales data was a bit better than expected, but this had little impact on yields.
The US yield curve has flattened again, with the spread between the 2 year and 10 year Treasury now at 48 bps, its narrowest level since 2007.
In local rates markets, there was a substantial fall in longer-term NZ swap rates, largely due to the decline in US Treasury yields the previous session. The 10 year swap rate fell 8 bps to its lowest level since September last year.
Yields elsewhere have fallen as well, with the 10 year German bund back below 0.5%, the first time since the start of the year.
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