Rates Spark: Bullish sentiment carries on for now
The bullish momentum was carried forward into the second day of the week with the 10Y US Treasury yield approaching 4.43% yesterday. Bunds traded closely aligned with the 10Y yield falling towards 2.42%.
Curves flattened as front ends traded more stable, especially in the eurozone. There was little news in terms of data or official comments to drive direction, and if anything the comments did sound more guarded. The European Central Bank’s Pablo De Cos followed the common line that June was likely to see a cut but with little commitment to a path beyond that. The Bundesbank’s Joachim Nagel went on to highlight structural factors that could keep inflation higher in the coming years. Over in the US, the Fed’s Neel Kashkari still would not entirely rule out a hike though the bar was high, and said multiple positive inflation readings would be necessary before a cut, but a weakening labour situation could also spur cuts. The market is sticking with a first Fed cut either in September or November at the latest.
With regards to the broader bullish sentiment in developed markets, all eyes today should turn to the Swedish central bank. The economists’ consensus is for a cut today, though markets are only pricing 16bp out of a possible 25bp cut. More relevant might be what will be signalled for policy further down the road with concerns over a weak krona likely meaning that officials will push back against the idea of back-to-back cuts.