Short-Term Bonds Look Attractive as Long-Dated Yields Hit Multidecade Highs — Market Talk
1036 ET - Short-dated bonds look more favorable than their long-dated peers, which have climbed to multidecade highs, Aberdeen Investments' Mark Munro says in a note. "Short-dated credit, across both sovereign and corporate bonds, allows [investors] to benefit from today's higher yields while reducing their exposure to the interest-rate volatility," he says. High oil prices and steady growth are causing investors to price in multiple interest-rate hikes by major central banks, contributing to rising sovereign bond yields. U.S. 30-year Treasury yields hit 5.693%, the highest since 2002, Tradeweb data show. U.S. 2-year Treasury yields fall 4.2 basis points to 4.848%. ([email protected])1030 ET - The euro is facing several headwinds, HSBC's Nick Andrews says in a note. The support the euro enjoyed from expectations for further European Central Bank interest-rate rises appears to have faded since the Federal Reserve raised rates and signaled further moves in September, he says. The eurozone also faces a hit from a potential U.S. ban on diesel exports and a possible natural gas squeeze this winter, he says. Furthermore, renewed French fiscal concerns have sent the 10-year German-French government bond yield spread to its highest level since 2012. "For euro-dollar, the balance of risks remains skewed lower." The euro falls 0.4% to $1.1286 after reaching a 16-month low of $1.1264 earlier, according to LSEG. ([email protected])1027 ET - France's 2027 budget should curb the deficit but will do little to stabilize public debt, while political uncertainty threatens to keep bond markets under pressure, ING analysts say in a note. The 43 billion-euro package aims to reduce the deficit to 5% of GDP, from 5.4% in 2026. But debt is projected to rise to 121.7% of GDP. ING expects a modified budget to pass, potentially bypassing a parliamentary vote. Meanwhile, French-German bond spreads--which currently trade at 135.90 basis points--could widen amid fiscal and political concerns. "We see spreads remaining in a range well above the 100 basis-point level--more likely testing levels towards 150bp." The ECB is unlikely to intervene, but could if turmoil spreads beyond France, the analysts say. ([email protected])0936 ET - Bitcoin's price is in a tug-of-war between strong ETF and corporate demand on one side and persistent inflation and rate risks on the other, Bitget Wallet's Lacie Zhang says in a note. It is trading around $83,500, with Zhang seeing $82,000 as the key downside level and $87,500 as the trigger to a bigger rally. Institutional demand can provide a floor, but it's unclear whether that demand can continue exceeding profit-taking by long-term holders and selling from miners, the analyst says. Bitcoin faces major tests from jobs data coming out tomorrow and September inflation data coming out in two weeks, Zhang says. If those reports reinforce the case for hiking rates, crypto will be under pressure from higher real yields and a stronger dollar, the analyst says. ([email protected])0913 ET - The cost of insuring 5-year French government bonds against default climbs to a multiyear high on growing fiscal and political concerns. French government bonds have come under pressure as rising borrowing costs weigh on public finances. On Thursday, the government outlined a budget proposal for 43 billion euros in cuts and cost savings, but implementing them could be tricky. Political uncertainty is high meanwhile ahead of the 2027 presidential election. "With a difficult political process ahead, French bonds are likely to remain under pressure," ING strategists say in a note. Five-year French credit default swaps jump to 72 basis points, their highest since 2017, having risen sharply from around 33 basis points at the start of September, S&P Global Market Intelligence data show. ([email protected])0848 ET - Treasury yields ease from multidecade highs as markets look at U.S. indicators to estimate the path of interest rates. Weekly jobless claims decrease to 197,000 from a upwardly revised 198,000, indicating layoffs remain stable. Economists surveyed by WSJ expected 200,000. September payrolls, due tomorrow, are expected to slow to 84,000 from 162,000. Futures markets price in higher probability of a Fed hold than a hike this month, according to LSEG. The 10-year Treasury yield slips to 5.277%, after touching a new 24-year high of 5.338% overnight. The two-year falls to 4.856% from 4.921%. ([email protected]; @ptrevisani)0753 ET - The dollar rises to a near 18-month high against a basket of currencies after data showed U.S. job cuts fell in September. U.S. employers announced 43,281 job cuts in September, down 18% from a month ago, according to the Challenger, Gray & Christmas report. It follows a 58% increase in job cuts in August. The data come after Wednesday's better-than-expected U.S. ADP private payrolls report and ahead of Friday's all-important nonfarm payrolls data. "The combination of robust U.S. economic growth, accelerating labor indicators, and elevated sovereign bond yields creates a compelling backdrop for the dollar," XS.com's Simon-Peter Massabni says in a note. The DXY dollar index rises to as high as 101.966, its highest level since April 2025. ([email protected])0748 ET - Citi boosts its 12-month target price on ether to $3,028 from $2,240 as renewed activity and dollar debasement fears return to markets. "The increase draws from all three components of our process: activity, macro, and ETF flows," the analysts write. "Ether is more sensitive to activity given its 'programmable money' use case." Investor fears that high government deficits could erode the value of fiat currencies is another reason behind the bank's more bullish shift on the broader crypto industry. Citi boosts its bitcoin target price to $113,000 from $82,000 alongside the ether upgrade. Ether is 0.6% higher at $2,696. ([email protected])0731 ET - Citi boosts its 12-month bitcoin target price to $113,000 from $82,000 as debasement fears return to markets. Renewed investor concern that high government deficits could erode the value of fiat currencies is one reason behind the shift in thinking. Regulatory clarity is another. "Paradoxically, the failure of the Clarity Act which spurred agency rulemaking, helped crypto regain technical levels," the analysts say. Citi adds that ETF inflows should be relatively sticky and consistent as investors gradually adopt bitcoin into portfolios. Bitcoin is 0.2% higher at $83,898. ([email protected])0649 ET - The U.K. government faces difficult choices over funding higher defense spending, with welfare reform likely to feature in Chancellor John Healey's upcoming budget, says Thomas Pugh at RSM UK in a note. "A big question hanging over the upcoming budget is whether Chancellor John Healey will set out a firm plan to raise defense spending to 3% of GDP by the end of the decade." Tight departmental budgets, limited scope for efficiency savings and bond-market concerns over higher borrowing may leave the government having to look into welfare reform to make up the numbers, Pugh says. "Ultimately, [Prime Minister] Burnham's rhetoric around social security may appeal to Labour backbenchers, but fiscal reality will become harder to avoid over the coming weeks," he says. ([email protected])0620 ET - The U.K. manufacturing sector continued to record modest growth in September, although rising energy costs due to the Middle East conflict threaten to weaken the outlook, Matt Swannell at the ITEM Club says in a note. The S&P Global manufacturing PMI edged up to 51.9 in September from 51.7 in August, with new orders remaining relatively healthy. But challenges are likely to gather pace, with the sector expected to lose momentum ahead, Swannell says. "Demand for consumer goods will cool as the resilience we've seen in the retail sector fades and consumers' spending is squeezed by rising inflation." Elevated energy prices are likely to persist through the first half of next year, pushing up manufacturing costs and goods inflation, Swannell adds. ([email protected])0614 ET - While energy prices in Switzerland may accelerate further, headline inflation should stay well within the Swiss National Bank's target range, meaning there is no need to raise interest rates, Capital Economics' Harry Chambers says. Swiss inflation rose to 1.0% in September from 0.8% in August, driven by energy costs, hitting the middle of the SNB's 0%-2% target. An expected stronger franc means that any increase in imported non-energy goods inflation should be limited, and that core inflation should remain very low, Chambers says. "We remain confident that the SNB will keep its policy rate unchanged at 0% over the coming years," he notes. Investors expect up to three Swiss rate hikes before the end of 2027, LSEG data show. ([email protected])