EUR/USD, USD/JPY, DXY flows - new long end yield highs jangle nerves
Push out in long end US yields to refresh post 2007 highs
May start to jangle nerves as risk mkt emerge from low vol summer-happy mood
US data not really relevant today – housing data seeing permits up to counter the lower starts, and industrial production as expected at 0.2/0.3%.
Higher long end yields more the focus however on the combination of factors – ongoing upward pressure on oil and other prices as the Iran conflict digs in, higher inflation and policy risk premia, still diminished confidence in Fed policy, and shifts in demand-supply conditions as high AI investment along with ongoing high deficits shifts investment-savings balances. Upward pressure in global yields especially Japan also drawing away support from UST demand. Recent geopolitical events, including the US’ fraying standing in the Middle East (of which the threat lashed out to Oman is symptomatic) also tending to undercut the appetite for US duration risk (the demise of petrodollars the cliche frequently wheeled out in that context). Not currently in focus, but it’s also worth throwing the US midterms election into the upcoming mix as well, as another factor that could be unhelpful to term premiums were it to be dragged into procedural farce and constitutional mess. US30s up at around 5.3%+ refresh the highest levels since 2007.
Main issue to watch emerging from the summer doldrums is the extent to which this starts to chip away at the low vol summer-happy risk rally.