UST 10-Y Daily
The most striking thing about last week’s price action was the surge in U.S. yields. The 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 U.S. Treasuries ($78 bln auctioned to lukewarm reception), coupled with an acceleration of (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 , 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 has a small doubt about the follow-up one.
The had a mixed week. led the advancing currencies with almost a 1.8% gain. Fully three-quarters of the rally took place in the last session ahead of the weekend amid some hopes that a work-around for the controversial backstop may be reached. We remain skeptical that the circle can be squared, which is to say the border between the EU and the UK cannot be between Northern Ireland and the UK. But if it is between the UK and Ireland, there must be a backstop to preserve the previous treaty