Bonds Are Getting Hammered Again - That's A Risk For Markets

 | Oct 28, 2016 11:40

Originally published by AxiTrader h2 Quick Recap/h2

Bonds have quietly snuck back onto traders radar with some big moves overnight. UK 10 year rates rose 12 points, German rates doubled (low base) and US rates hit the highest level in months. If this sell off continues then stocks traders will have questions to answer about valuations and we could see sell offs in both asset classes if US 10's break 2%.

The US dollar was a big mover overnight as well hitting a new 7 month high driving USD/JPY back above 105 and the AUD/USD below 76.

But stocks in the US were only marginally lower.

h2 What You Need To Know/h2 h3 International/h3
  • An earthquake went off in the bond market overnight with rates rising sharply at the long end of the curve. Already yesterday in our timezone the US 10’s were sitting just below 1.81%. But overnight they are up another 5 points to 1.86% as bonds in the big markets surged lead by the selloff in UK and German rates.
  • UK Q3 GDP which was better than expected with a print of 0.5% which saw year on year growth accelerate to 2.3% and that is being blamed for the sell off in bonds.
  • But as I highlighted US rates were already back at multi-month highs in our time zone yesterday and if you read this note daily you’ll know there has been a theme I been recording of reflation for the economy. It’s not just that Brexit doesn’t appear to have damaged the UK economy anywhere near as much as many said – something I talked about here from the very start – but rather there is a pulse of growth and inflation which is moving through the global economy. The UK data last night simply added to better data we’ve seen from Germany, even France, and the CPI and PPI trends in data released over the past few weeks.