yields hedged their previous 6-month range last week.
Whether or not this movement is sustainable matters a lot. While risky assets might ignore long-term stocks, they will have a harder time ignoring “Blues and 2” moves (2-year yields) without a doubt.
(The blues are a sequence of individual futures contracts grouped together over a 4-year term. Companies use these IMM US Libor interest rate bands to hedge Libor floating rate loans, and the market is speculating against it.)
Despite consistent messages from last week that bolstered their ‘patiently dovish’ stance, interest rates continued to climb sharply, with the market forecasting a full rate hike in early 2023 and nearly three rate hikes. (cumulative) by the end of 2023.
I think it’s worth keeping an eye out for picking up steering volumes in mid-curve exposures. So far, it has been focused on the September and December expirations, but if the movement continues, rate traders could start moving in June, which is currently recognized as the line in the sand for declining games.
Fed officials have largely ignored recent developments in yields, considering the rate hike to reflect more positive growth prospects. However, the sharp reassessment of the Fed’s policy tightening, coupled with the rapid rise in real yields across the curve, poses risks of an unwanted tightening in financial conditions. Real returns have become a source of volatility for painful trades rather than a source of support for reflation trades.
This week will be the last opportunity for Fed officials to change their tone in this regard, given the next blackout period ahead of the March 16-17 FOMC meeting. It is therefore a big week on the repression front.
Meanwhile, the RBA will need to craft a more convincing system to claim that QE is keeping yields lower even as their buys met fierce sells again last night. Many Australian bond sellers are likely punters caught offside by hard-to-keep central bank promises.
Much like the 1,2000 floors of it drew speculators to the SNB line in the sand on the lure of a free money trade which, of course, resulted in everything but free money. The RBA’s end-of-cycle bond purchase commitments also attracted too many long positions.
Investors will also have a full data dossier to manage this week, and any sign of higher than expected inflation will continue to hit the market like a ton of bricks. And even if the Fed minimizes the impact of base effects, traders won’t hesitate to bluff.
In addition to the inflationary revaluation last Friday, the January core PCE in the United States stood at 0.3% and 1.5%, higher than expectations of 0.1% a month on the other and 1.4% year over year, and after 0.3% month over month. and 1.5% year-on-year.
The rally in US rates finally prevailed. The deterioration in risk sentiment over the weekend shook its foundations’ relationship sentiment, triggering a short squeeze in the USD, made worse by the fact that liquidity fell precipitously on Friday.
Like most commodities and bond currencies, prices are caught in the domino effect of rising US rates. Still, it’s quite surprising how much resilient oil has traded given the broader market moves so far, which suggests that OPEC’s unity rather than a halt in management of the offer remains on the agenda.
The March 3 OPEC + is an increasingly essential ingredient, and producers are faced with the delicate task of sorting through the different moving parts to form a strategy that makes everyone happy. But let’s not beat around the bush; more supply needs to come into the market to ensure that OPEC + meets growing demand and keeps the internal discipline ducks in a row.
Evidence of a tighter oil market in 2021 prompted several brokers to revise oil price targets upwards, helping to hit 13 months last week. While it is true that the market is likely to be under-supplied this year, what is ignored is the fact that this deficit depends entirely on the reduction in supply from OPEC +. The artificial shortage created by the OPEC + agreement will help accelerate the reduction of global stocks. Nevertheless, the rise in oil should be capped by the ~ 9 mb / d of spare capacity in OPEC +.
Rising US yields continue to exert pressure, which remains mired in a downtrend that began in August, with the Gold ETF (NYSE 🙂 and speculative futures positioning both rising from the high to around 80% of the range. from last year.
Technical trends manifested when gold fell to $ 1,756.30 from $ 1,765.66 and then triggered stop losses in a cascading effect.
Rising US bond yields, triggering USD inflows, are the most significant headwinds for precious metals.