Treasury Yields Fall Amid Flight to Safety — Market Talk
0914 ET - Treasury yields slip, as risk appetite shrinks in global markets. The $6.3 billion Binance hack, what's to be the largest digital-currency heist on record, spooks investors already worried about the AI selloff. The Bank of Japan joins the Fed and the ECB in holding rates steady, while markets price in high odds all three will hike in December. The U.S. employment cost index rises 0.8% in 3Q, meeting WSJ consensus. The 10-year is at 4.939% and the two-year at 4.606%, both off overnight lows and slightly lower than yesterday. They are also on track to end the month with significant declines.([email protected]; @ptrevisani)0843 ET - Germany's economy overcame higher energy prices and low water levels on the Rhine to expand 0.2% on quarter in the three months to September. "Growth in the third quarter was actually not bad," says Commerzbank's Joerg Kraemer in a note. The economy "should continue to grow in the coming quarters, albeit at a moderate pace." Exports, which picked up in the quarter, are unlikely to rebound as strongly as they typically do during economic upturns, owing to President Trump's tariffs and competitive pressure from China, he says. Corporate investment in machinery and equipment, which probably declined in the third quarter, is also likely to continue to suffer. "We expect moderate growth of 1.2% this year," Kraemer says, penciling in a slowdown to 1.0% for 2027. ([email protected])0841 ET - Early data indicates Canada's economy cooled more sharply than anticipated in 3Q. Monthly production-side GDP accounts show activity was essentially unchanged for a second straight month in August, where economists were expecting growth of about 0.2%. Statistics Canada's advance estimate points to a 0.1% decrease in GDP for September, which means that 3Q GDP is tracking growth of 1.3% on an annualized basis. That is much softer than the strong 3.8% expansion in industry-level activity the quarter before, and would be softer than the 2% the Bank of Canada forecast. Official data is due at the end of November, which will also incorporate volatile indicators like inventories and could shift the needle. ([email protected]; @RobbMStewart)0750 ET - Sterling rises to a six-week high against the dollar and a 19-month high versus the euro as the Bank of England is widely expected to raise interest rates on Thursday. Markets are nearly fully pricing a 25 basis-point rate increase followed by more than three rises next year, exceeding pricing for the Federal Reserve and European Central Bank, LSEG data show. This week the Fed and ECB left rates unchanged and refrained from clearly signalling future possible tightening. Sterling is also supported by fresh AI concerns weakening the dollar and ongoing French debt concerns weighing on the euro. Sterling rises to as high as $1.3433 while the euro falls to as low as 0.8330 pounds, LSEG data show. ([email protected])0738 ET - The eurozone economy grew at a decent pace in the third quarter, but performance across countries varied, Paolo Grignani at Oxford Economics says in a note. GDP grew 0.4%, with Germany and Spain gaining traction while France and Italy slowed. "The story is more interesting at the country level, as weakening growth and accelerating inflation in countries set to hold elections in the coming months, in a fragmented political context, add to uncertainty," he says. The economy is particularly vulnerable to a narrow boost from investment in artificial intelligence and defense, Grignani adds. Overall, while today's data paints a mixed picture with signs of stagflation, the eurozone economy is still set to end the year on a decent footing, he says. ([email protected])0728 ET - Euro-denominated credit spreads are expected to widen further over the coming months due to the impact of the Middle East conflict on the eurozone economy, weak economic growth, and political uncertainty in France, LBBW's Michael Koehler says in a note. Euro credit spreads are near historically low levels, raising the possibility of spread widening as domestic and global pressures weigh on investor sentiment, Koehler says. LBBW has revised up their forecast for the BBB euro credit spread relative to German Bunds to 115 basis points by the end of 2026, from their previous forecast of 100 bps. ([email protected])0725 ET - An important factor for the euro's outlook is whether energy prices remain high and feed into broader price pressures, Commerzbank's Norman Liebke says in a note. If energy prices stay elevated and signs of second-round effects increase, the market could price in more interest-rate rises by the European Central Bank, supporting the euro, he says. If price pressures remain largely confined to energy, the bar for further rate hikes after a likely move in December will remain high, he says. In this case, the euro's upside potential will be limited, particularly as energy inflation could partly decline again next year due to base effects, he says. The euro rises 0.2% to $1.1201. ([email protected])0723 ET - Spain's economy continued to shrug off global headwinds hitting its neighbors, expanding a solid 0.6% in the third quarter, JPMorgan's Mariana Monteiro says in a note. Household spending underpinned the performance, as consumption remained resilient despite higher inflation, supported by employment growth, she says. It means Spain is heading into elections with a pretty enviable economic backdrop, particularly compared with neighboring France. "We continue to think that the election itself is unlikely to materially alter the economy's near-term trajectory," Monteiro says. Indeed, the strong September PMI points to upside risks to the bank's fourth-quarter growth forecast, she says. Beyond the near term, growth could cool as European Union funds roll off, fiscal consolidation continues and immigration-driven labor-supply gains diminish, she says. ([email protected])0721 ET - The Japanese yen's modest appreciation after the Bank of Japan signalled future interest-rate increases reflects the fact that tightening is already well priced in, MUFG Bank analysts say in a note. The BOJ left rates unchanged Friday as expected but highlighted the risk of rising inflation and BOJ Governor Kazuo Ueda said the central bank will keep mulling the need for a rate hike at each meeting. MUFG expects the BoJ to deliver another quarterly hike in December. Markets price 80 basis points of tightening by the end of 2027, LSEG data show. The dollar falls 0.4% to 157.13 yen. ([email protected])0704 ET - There are several key things investors should watch in the aftermath of the Binance hack, says Tobias Bauer at Web3 venture capital firm TBV. One is whether withdrawals reopen smoothly and without creating further liquidity or operational stress. Another is whether the post-mortem of the hack shows an isolated endpoint compromise or a broader weakness in internal access controls. Initial findings suggest a compromised computer may have been the entry point. "In other words, the weakest point in a crypto platform can still sit in very traditional operational infrastructure." Other points worth monitoring are how much frozen capital is ultimately recovered, and whether updated reserve disclosures support confidence in the platform's ability to absorb the losses while continuing normal operations, Bauer says. ([email protected])0703 ET - U.K. government bonds yields, or gilt yields, remain fairly steady as investor attention shifts to the tech industry and cryptocurrencies, XTB's Kathleen Brooks says in a note. Concerns about AI-linked spending and the multi-billion dollar heist on the world's largest cryptocurrency exchange are weighing on market sentiment and driving a rush to safe-haven assets such as government bonds, she says. The calm in the gilt markets is an indication that market pressures are elsewhere, Brooks says. Ten-year gilt yields fall 1.2 basis points to 5.278%, Tradeweb data show. ([email protected])0656 ET - The risk of continued volatility in equities driven by growing doubts over AI valuations could weigh further on the dollar's performance, MUFG Bank analysts say in a note. "The U.S. is at the heart of the AI phenomenon, and the strength of the economy is highly dependent on it." That leaves the dollar vulnerable to a turn in AI momentum, they say. A negative aspect for the U.S. economy from AI also comes from the surging trade deficit, they say. The U.S. deficit with South Korea, Taiwan and Mexico is widening as the U.S. imports the products needed for AI. The DXY dollar index falls 0.4% to 101.664. ([email protected])