The U.S. 10-year Treasury yield hit its highest in more than four years at 2.998 percent US10YT=RR on Monday, driven by worries about the growing supply of government debt and inflationary pressures from rising oil prices.
The U.S. 10-year bond yield later backed off that level and stood at 2.964 percent in Tuesday’s Asian trade.
Yields have also risen at the short end of the curve, with the U.S. 2-year yield having reached a high of 2.483 percent US2YT=RR this week, the highest since September 2008.
The dollar’s index against a basket of six major peers rose to as high as 91.076 .DXY, its strongest since Jan. 12. The dollar index was last steady on the day at 90.929.
The dollar set a two-month high of 108.87 yen JPY= and last stood at 108.82 yen, up 0.1 percent on the day.
The euro held steady at $1.2209 EUR=, having pared its losses after falling to $1.2185 earlier on Tuesday, the lowest for the common currency since March 1.
· The British Pound enters this week reeling following commentary made by Bank of England Governor Mark Carney last week. The BOE chief noted that recent economic data has been uneven, prompting speculation that a 25-bps rate hike in May is not a sure thing after all. BOE May rate hike odds have dropped from near 85% to below 50% in the three days following his remarks.
· The 10-year U.S. Treasury yield hovered just under 3 percent on Tuesday. Bonds are usually seen as a safe-haven investment over equities. But with central banks keeping interest rates low in the past few years, government bonds have had low yields. Now, as the U.S. Federal Reserve and other central banks begin to raise interest rates, bond yields should go higher.
· According to the Fed's economic projections, the central bank expects to raise rates three times by year-end. However, market expectations for a fourth rate hike in December rose to 48percent Monday, according to the CME Group's FedWatch tool.
Investors have been keeping a close eye on bonds as yields crept higher and the benchmark 10-year securities edging toward 3% with inflation pressures coming into focus amid recent strength in commodities. A 25 basis-point rate hike is now widely expected in June, with a 93% probability on the CME Group's FedWatch tool.
· Even though the European Central Bank policy decision on Thursday will not bring forward a new set of Staff Economic Projections, odds remain high that ECB President Mario Draghi will use his platform to outline a more dovish tone moving forward. Part of the reason for disappointment in some of the data and inflation expectations in recent weeks can be attributed directly to the Euro itself: it remains up by more than +9% year-over-year on a trade-weighted basis. The stronger the Euro is relative to its peers, the less appealing Eurozone exports appear, plain and simple.
In fact, looking at overnight index swaps, there is a 25% chance of a rate move by the end of 2018, but rates markets aren’t pricing in a policy change in earnest until at least Q3’19.
· Iranian President Hassan Rouhani warned U.S. President Donald Trump on Tuesday to remain in the nuclear deal Tehran signed with world powers in 2015, or face “severe consequences”.
· Russian Foreign Minister Sergei Lavrov said on Tuesday the United States had no intention to leave Syria despite Washington saying it had such plans, the RIA state news agency said.
· China has conducted live combat drills in the East China Sea, state news agency Xinhua reported late on Monday, the latest in a series of air and sea military exercises it has conducted over the past 10 days.
It did not specify where exactly the exercises took place.
· The Bank of Japan may walk back some of the relatively hawkish commentary made since the end of March following the release of the March inflation report last week. The National Consumer Price Index came in at +1.1% from +1.5% in March, highlighting the extent to which the BOJ needs to continue to keep its foot on the pedal for its easing program. Any such discussion by BOJ Governor Kuroda that remains centered on pulling back the central bank’s extraordinary easing efforts around the start of fiscal year 2019 (next April) would be seen as hawkish in light of recent data.
· Japan’s Economy Minister Toshimitsu Motegi said on Tuesday that bilateral talks on trade under a new framework led by him and U.S. Trade Representative Robert Lighthizer won’t begin until mid-June at the earliest.
In a summit last week, Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump agreed to set up a new framework focusing on bilateral trade led by Motegi and Lighthizer.
· Brent crude oil rose for a sixth day on Tuesday to hit its highest since November, 2014 at over $75 a barrel, buoyed by expectations that supplies will tighten just as demand reaches record levels.
Brent crude futures LCOc1 marked $75.27 a barrel on Tuesday, their highest since Nov. 27, 2014. Brent was still at $75.07 a barrel at 0708 GMT, up 36 cents, or 0.5 percent, from its last close.
Brent’s six-day rising streak is the longest such string of gains since December, with prices up more than 20 percent from 2018-lows plumbed in February.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $69.17 a barrel, up 53 cents, or 0.8 percent, from their last settlement. On Thursday, WTI rose to its strongest since Nov. 28,2014 at $69.56.
Reference: Reuters, CNBC, DailyFX
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