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While the US dollar has bounced back a bit this week, its struggles over the past month or so are in some ways similar to the lead up to its sharp fall in Q4 of last year . But we think a comparable slide over the coming months looks unlikely . After …
9th November 2023
The US dollar’s struggles over the past month or so are reminiscent of the lead up to its sharp fall in Q4 of last year, but a similar slide over the coming months looks unlikely. Instead, we continue to think that the greenback will muddle through, …
Given our pessimistic view of the economy in the US, we think that equities there will fare quite poorly in the near term. But the biggest components of the S&P 500 might hold up better. Equities have bounced back sharply over the past ten days, with the …
8th November 2023
Despite some differences in the monetary policy outlooks for Australia and the US, we doubt 10-year yields in the two economies will diverge much. Earlier today the Reserve Bank of Australia (RBA) made what looks likely to be one of the last moves in the …
7th November 2023
We think the risks to the “goldilocks” view being discounted in markets are skewed towards a bigger slowdown in the US than is currently discounted, driving credit spreads up over the coming months. The market reaction to data in the US last week, rounded …
6th November 2023
After a remarkably slow October in currency markets – for all the fireworks in bond and equity markets, most major currencies were roughly unchanged on the month – November has started with a bang. Between a relatively dovish FOMC and a spate of softer US …
3rd November 2023
We think today’s big moves in markets in the wake of October’s US Employment Report are a sign of things to come over the next twelve months or so. More evidence that the labour market in the US is cooling and that wage growth there is moderating (see …
The yields of UK government bonds (Gilts) have dropped back in recent days, and we think that they will fall further over the next year or so, even if they settle far above their post-pandemic lows. UK government bond yields have fallen a bit further …
2nd November 2023
We think the Bank of Japan’s continued steps towards policy normalisation are consistent with somewhat higher JGB yields and a significant rebound in the yen over the coming quarters. To recap, the BoJ made another tweak to its Yield Curve Control (YCC) …
The Treasury’s Quarterly Refunding announcement (QRA) today may have eased some upward pressure on Treasury term premia, but we think these premia are unlikely to fall further over the coming years. Although the Treasury today increased the auction size …
1st November 2023
As is often the case, it is hard to know just what to make of the Bank of Japan’s latest policy announcement. Our sense is that the resulting rise in Japanese government bond yields is more likely to endure than the sharp fall in the yen. To recap, the …
31st October 2023
The dollar stayed strong in October but failed to add much to its broad-based rally since July. We think elevated US yields are likely to keep the greenback on the front foot, particularly if risk sentiment continues to deteriorate. However, while we …
A renewed surge in the spreads of private-label commercial mortgage-backed securities (CMBS), at a time when the spreads of high-yield (HY) corporate bonds have remained fairly subdued (see Chart 1), has attracted little attention in US bond markets amid …
30th October 2023
While we think the cyclical forces that have weakened the relationship between commodity prices and “commodity currencies” will fade before long, we suspect some structural factors – namely the US’s ongoing shift to becoming an energy exporter – mean that …
Despite another week of broadly dollar-positive news, the greenback has continued to drift sideways – suggesting its rally since July is running out of steam. Even though US Q3 GDP came in at nearly 5% annualised growth, while data in Europe continued to …
27th October 2023
Today’s rebound in Amazon’s share price following news that its sales were better than expected in Q3 has shored up the performance of the ‘Magnificent 7’ in what has otherwise been a tough week for most of them amid a mixed bag of reports, lingering …
Spreads in Greece, Italy, Portugal, and Spain have diverged in unusual directions this year, and we doubt that these trends will revert any time soon. As was universally anticipated, the ECB stood pat at its meeting today: policy rates were kept unchanged …
26th October 2023
We think the Chilean peso is poised for a rebound in 2024 as the headwinds from the narrowing interest rate differential and the terms of trade deterioration reverse. The Chilean peso has underperformed nearly all other major emerging market currencies …
The war between Hamas and Israel – and the potential for escalation to the wider region – has increased the uncertainty around the economic and financial market outlook, but in most scenarios is unlikely to generate a sustained hit to major asset markets. …
We expect the US Treasury 10-year/2-year yield spread to turn positive before long, and subsequently rise further over the next year or so. The rapid move towards “disinversion” of the US Treasury yield curve seems to have regained steam today as yields …
25th October 2023
Long-term Treasury yields have risen to new cyclical highs despite a generally weak global economic backdrop. Short-term “technical” indicators also suggest to us the surge in yields may have run its course. PMI survey data released earlier today was …
24th October 2023
Concerns over supply -demand dynamics in the Treasury market seem to be a key factor pushing up Treasury term premia. But we think rising inflation uncertainty among investors has also played a part. The ACM estimate of the 10-year Treasury term premium …
23rd October 2023
Amid the surge in Treasury yields and the fall in global equities, the US dollar seems set (somewhat surprisingly) to end the week broadly unchanged. In our view, the key reason the dollar has failed to rally on the back of what looks in many ways like a …
20th October 2023
US financ ial conditions may soon tighten further, as t he economy slows and credit spreads rise. But, by then, the 10-year Treasury yield may be falling. On Thursday, the 10-year Treasury yield briefly broke through 5% for the first time since 2007. That …
Big banks in the US have reported quite strong earnings in Q3 but, given our pessimistic view of the economy there, we doubt that their stocks will outperform much in the next couple of months. Earnings season started last week in the US, and most major …
19th October 2023
While the global backdrop continues to favour the US dollar, its rally has stalled in recent weeks and we think that, absent a major deterioration in risk sentiment, the greenback will struggle to make significant further gains. So far this month, there …
We think China’s improving economy may help stop the fall in the country’s stock markets, and see them outperform those of the US for a bit. China’s stronger-than-expected Q3 GDP data, released earlier today, seem to have given the Hang Seng Index a small …
18th October 2023
We think equilibrium real policy rates in advanced economies will continue to rise over the next decade or so. That has profound implications for government bond yields and risky asset valuations. Discussions of ‘higher for longer’ generally relate to the …
17th October 2023
Market jitters around the war between Hamas and Israel appear to have stabilised today. But given that the uncertainty on that front is unlikely to fade entirely any time soon, it is worth taking stock of the warning signs evident in commodity markets. …
16th October 2023
After another topsy-turvy week in financial markets, the dollar appears to be back on the front foot. In part, that probably reflects Thursday’s US CPI print, which came in a touch higher than expected. That led to a rebound in US Treasury yields, which …
13th October 2023
We don’t expect a rise in earnings expectations to give the S&P 500 much of a near-term boost, but think the picture is more positive further ahead. Although US earnings season is getting under way, corporate profits probably haven’t always been front of …
We still think the Fed and investors are too pessimistic about inflation in the US returning to target. We expect a continued fall in both core and headline inflation to push down US Treasury yields over at least the next year or so. CPI data out of the …
12th October 2023
The US dollar has risen against most currencies since the start of the year, while most of our estimates of the greenback’s “fair value” are little unchanged. Taken together, this leaves the dollar somewhat overvalued in our assessment. At this point, we …
The fall in Treasury yields since last Friday has pushed corporate bond yields down and equities up in the US. But while we think that Treasuries will keep rallying, we suspect that corporate bonds and equities will fare quite poorly in the near term. …
11th October 2023
We expect a continued paring back of US interest rate expectations to keep pushing long-dated Treasury yields down in coming quarters. But higher term premia may limit those falls in yields. Moves in long-dated Treasury yields have been mixed so far …
10th October 2023
The latest war between Hamas and Israel comes at a tricky juncture for global markets, and could easily increase volatility further. At this point, we think there are three key considerations around the potential market fallout. First, major financial …
9th October 2023
The US stock market has rallied so far today and is on track to bring to an end a spell of weekly losses. Although we think that the proximate cause of this recent weakness – rising bond yields – has largely run its course, we don’t expect the fortunes of …
6th October 2023
Remarkably, the dollar may be about the lose its record streak of weekly gains despite a strong US payrolls report . (See Chart 1.) While the initial reaction to today’s data was another jump in the greenback, it has since given back that gain, and those …
The government bond sell-off over the past three months raises uncomfortable questions around the risks of financial instability and the outlook for fiscal policy. This note takes stock of what has driven the rise in long-term sovereign bond yields and …
A laundry list of explanations has been provided for the surge in the term premia of Treasuries since mid-year, which has accounted for more than ~100bp rise in the 10-year yield based on the ACM model estimate. (See Chart 1.) One explanation that doesn’t …
5th October 2023
The sell-off in bond markets has taken a breather today, helped in part by softer data on the US labour market. However, the scale of the moves over the past week has invoked comparisons to previous financial crises that have been caused by sharp moves in …
4th October 2023
While government bond yields have stabilised today, their sharp rises over recent weeks are increasingly concerning. We think there are four key observations to make at this point. First, long-term yields have been rising steadily since mid-July, but have …
This page has been updated with additional analysis since first publication . Japan’s Ministry of Finance may have intervened in support of the yen today after the USD/JPY rate rose through the symbolic 150 level in the wake of the upside surprise in US …
3rd October 2023
We think that the yields of Australian long-term sovereign bonds will fall by a bit less than those of US Treasuries over the next couple of years, even though they’ve moved in lockstep lately. But the picture looks a bit different, to us, in other …
The higher-for-longer narrative took hold over the third quarter, pushing bonds and equities down in most markets. But we doubt that this narrative will last. We expect bond markets to rebound as inflation falls more quickly than widely anticipated. And …
2nd October 2023
While concerns about euro-zone public finances put upward pressure on bond yields there, the outlook for inflation will probably remain the focus for investors . In our view, that means bond yields in the euro-zone will fall by end-2024, but by much less …
29th September 2023
The week is set to end with the US dollar a bit higher against most currencies and the DXY Index just below fresh year-to-date highs. The dollar’s latest gains coincide with yet another week of rising long-term bond yields in the US and elsewhere. But …
The US dollar’s record run of 10 consecutive weekly gains has brought it to its strongest level since last December (see Chart 1), and prompted renewed talk of FX intervention in Asia. We think that market participants have now gone too far in discounting …
28th September 2023
We think the “tech”-heavy sectors of the stock market, which have largely shrugged off the rout in Treasuries, will generally continue to do well. The Treasury market sell-off has continued in earnest this week. The 10-year Treasury and TIPS yields have …
10Y Treasuries have underperformed 2Y Treasuries over recent months, bucking the usual pattern after the final Fed hike (if, as we think, the final hike was in July). But we think the stage is now set for 10Y Treasuries to outperform over the next year or …
27th September 2023
