Yields

Bondcano, the phrase coined to described the sharp acceleration of bond yields to the detriment of equities, appears to be smouldering as yields have pulled back from their highs. It has certainly provided some relief for sentiment, given the well-based concerns that something was about to break in the financial system. But with the Fed members now striking a relatively dovish tone, it raises the question as to whether bond investors will now step back into the market to capitalise on attractive yields and take the sting out of bondcano’s tail.

EUR/USD is on track for a record 12th consecutive losing streak. But given its hesitancy to test 1.04 and the potential for a false break of the January low, perhaps we’re finally nearing an inflection point for the battered EUR/USD.

US bond yields pulled back to give risk assets a reprieve from their selloff on Wednesday. But with bond market implied volatility also pulling back, perhaps there's a little more room for a bounce for the Nikkei and S&P 500.

The bond rout and sharp rise in yields continue to take centre stage for sentiment. And the longer this trend persists, the greater the odds appear for indices to finally roll over. Given three key US indices are showing signs of stability around their respective support levels, it brings the potential for a minor bounce over the near-term. But if bond yields keep rising, any such bounce could prove futile for bulls.

The US yield curve has continued to creep higher after the 3-day weekend in the US, heling the US dollar retain its place at the top spot among currency majors. Yet WTI crude oil is managing to outpace the dollar, and looks set for at least another attempt to test the $90 level.

It is also worth noting that the 2-year yield printed a bearish engulfing week after a failed attempt to break and hold above 5%. And if yields continue to move lower over the coming weeks, it will likely weigh on the US dollar. Large speculators are slowly loosening their bullish grip on GBP/USD futures, with short exposure rising by 25% last week. Traders are also showing renewed bullish interest in gold and silver.

When bond markets move, investors in other markets always take notice

Watching US 10-Year Yields and USD/JPY could give a clue as to the next direction for mortgage rates.

In the mid-2000’s, the NAHB Housing Market Index dropped dramatically, similar to what is happening today. Could this be a foreshadowing of a recession?

In the mid-2000’s, the NAHB Housing Market Index dropped dramatically, similar to what is happening today. Could this be a foreshadowing of a recession?

On January 4th the S&P 500 reached a record high of 4820.2. Today, the large cap index made a new low for the year, reaching an intra-day low of 3620.2, a fall of nearly 25% so far this year!

Bearish trend persist for indices and metals as investors watch yields continue to rise following a flurry of central bank action this week.

If the inflation components are higher than expected, watch for a possible tape-bomb from the Wall Street Journal that the Fed is “more likely” to hike 100bps.

A combination of favourable yield differentials, higher oil prices and a bullish consolidation on CAD/JPY suggest it could break to new highs in due course.

July housing data finished up this week with worse than expected New Home Sales and better than expected Pending Home Sales.

Investors appear convinced the Fed will slow down rate hikes despite officials indicating otherwise.

The correlation between USD/JPY and 10-year yields has come back in line and is almost in “strong” territory on the daily timeframe.