Global markets in turmoil as government bonds flash warning…
For the first time in over a decade the yield on 10-year US government debt has pushed below that of 2-year duration bonds. The implication being that participants believe growth will slow and interest rates will need to be considerably reduced, ultimately suggesting that rates will be lower in 10 years’ time than 2! This development, which occurred yesterday around lunchtime, has spooked markets and led to the worst day for many global stock indices for nearly 1 year.
The panic certainly spread into currency markets. As usual the Japanese yen and Swiss franc benefited greatly, with the US dollar not far behind. Even though the move in bond markets was centered around the US (it also occurred in UK government bond – gilts) the US dollar still was sought after as by definition of the movement massive inflows were seen into US markets.
This development has certainly created an uproar across financial markets and many traders and dealers will be on edge heading into Thursday’s session. While markets seem to have stabilised somewhat, it can’t be ruled out that more volatility and panic will arrive. It’s likely that risk currencies become riskier and safe havens continue to be sought. This means GBP, the Chinese yuan and commodity currencies remain in the firing-line while the greenback, yen and franc are the standby go-to assets.
This morning sees UK retail sales while the afternoon sees a raft of US tier 2 releases.
Written by Viv Savani. 8:32am, August 15th 2019
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9:18am, January 29th 2020
Greenback in focus as first Fed announcement of 2020 arrives tonight…