Jump in Yields Didn't Derail Equity Rally While Sterling Rallies Ahead of the Weekend on (misplaced) Brexit Optimism

Sep 15 14:09 2019 Print This Article

The most striking thing about last week's price action was the surge in US yields.  The 10-year yield jumped about 34 basis points, the most in three years and returned to levels not seen since August 2 (1.90%).  A deluge of investment-grade corporate bonds and US Treasuries ($78 bln auctioned to lukewarm reception), coupled with an acceleration of core CPI (highest in 11 years), optimism on the trade front, and Mnuchin's insistence on pushing forward with an extra-long bond, (50, and possibly 100 year-maturities), though has been repeatedly advised against it by primary dealers, were among the potent drivers. There was a dramatic shift from fixed-income funds to equities funds according to some industry reports.   

Part of the rise in the long-end can be attributed to swings in sentiment about the trajectory of overnight rates.  The implied yield of the January 2020 fed funds futures contract rose 14 bp last week.  The market has assumed next week's cut, which would be the second cut here in H2 19, and a third one.  The issue had been the fourth one, and the market priced it out last week, and for the first time in over a month, the market is a small doubt about the follow-up one.  

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About Article Author

Marc to Market

Marc Chandler has been covering the global capital markets in one fashion or another for more than 25 years, working at economic consulting firms and global investment banks. Chandler attended North Central College for undergraduate work, where he majored in political science and the humanities. He holds master's degrees from Northern Illinois University and University of Pittsburgh in American History and International Political Economy. Currently Chandler teaches at New York University Center for Global Affairs, where he is an associate professor. A prolific writer and speaker he appears regularly in the press and has spoken for, and is an honorary fellow of, the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. In 2009, Chandler was named a Business Visionary by Forbes. In 2009, his book, Making Sense of the Dollar, was published by Bloomberg Press and received a Bronze Award from Independent Publishers.

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