U.S. Treasury Yields Likely to Stay Rangebound Near Term — Market Talk
0704 GMT - U.S. Treasury yields are expected to remain rangebound in the near term, with the 10-year yield trading mostly near 5% in the coming weeks, says Jussi Hiljanen at SEB in a note. "Concerns over AI-related stocks and rising energy prices have driven a rotation into bonds, lowering long-end yields and flattening the curve," the chief U.S. dollar and euro rates strategist says. Money markets are pricing in around 55 basis points of Federal Reserve rate hikes on a 12-month horizon, potentially softening over time and thus supporting bonds, he says. ([email protected])0648 GMT - Donner & Reuschel sees two scenarios conceivable for the European Central Bank's December meeting: an increase in interest rates, or no change as the ECB waits to see to what extent weaker growth momentum curbs inflationary risks, says chief economist Carsten Mumm. From March 2027, the energy component could cease to drive inflation--potentially even exerting downward pressure--due to base effects, provided that energy prices don't stage another significant increase, he says. "In the financial markets, this is likely to result in a continued decline in the yields on longer-term government bonds, while the euro is expected to have little potential for appreciation," he says. ([email protected])0647 GMT - Crypto markets are holding up better than one would expect in the wake of what is likely the biggest crypto hack ever, says Nic Puckrin, founder at Coin Bureau. The immediate fallout of the theft of billions from Binance-linked wallets has been massive, but a proactive response from crypto exchanges and protocols--including Binance--seems to have contained the damage, Puckrin says. Given the extent of the hack, the resilience of crypto assets is notable, especially given the sharp selloff in tech. While the incident is hardly good for sentiment, the fact that crypto is holding up relatively well suggests that fears have been slightly assuaged, he adds. Bitcoin pares losses to 0.5%, and ethereum pares losses to 0.4%. Both were down around 3% earlier. ([email protected])0630 GMT - The European Central Bank's press conference and tone of the statement were more dovish than the market expected, says MFS Investment Management's Annalisa Piazza in a note. It represented a meaningful shift relative to September, particularly in the assessment of financial conditions and the risks to growth, Piazza says. "However, we would not interpret it as a signal that the ECB is preparing to reverse its tightening cycle," the portfolio manager says. The ECB is moving from a relatively straightforward inflation-fighting narrative toward a more balanced assessment of the trade-off between persistently high energy inflation and deteriorating financing conditions, says MFS IM. ([email protected])0618 GMT - Eurozone government bond yield spreads have consolidated a bit from their recent highs, but investors remain cautious, awaiting greater clarity or better entry levels, say Societe Generale rates strategists in a note. Caution persists regarding potential new waves of volatility in French government bonds, or OATs, "given uncertainties about next protests, budget negotiations and investors not yet keen to add a lot of risk," they say. However, spillovers from France-specific moves to other eurozone government bonds are getting smaller. "Belgium and Italy remain the most exposed to a repricing of French risk, but we are far from a broader euro-area sovereign shock," the rates strategists say. ([email protected])0607 GMT - The European Central Bank kept interest rates on hold, but this pause is unlikely to signal an end to its rate hikes, BlackRock Investment Institute's Ann-Katrin Petersen says in a note. The bigger question is how far and fast the ECB's rate hikes need to go and how restrictive their monetary policy will ultimately become, the chief investment strategist for Germany, Austria, Switzerland and Eastern Europe says. That decision is complicated by both the evolving energy supply shock and strain in bond markets, she says. BlackRock thinks a rate hike to 2.75% in December is likely if energy-driven price pressures persist, while at 2.50%, rates remain at the upper end of the ECB's estimated neutral range, which neither restricts nor stimulates economic growth, she says. ([email protected])0600 GMT - By holding interest rates steady, the Federal Reserve has effectively deferred the debate on inflation rather than settled it, Federated Hermes' Karen Manna says in a note. "The market's attention now shifts to December, incoming economic data, and any signals that clarify the Fed's reaction function," the fixed income strategist says. Beyond the near-term outlook, investors will increasingly focus on the work of the Task Forces and the composition of the 2027 Federal Open Market Committee, both of which could shape the trajectory of policy over the coming years, Manna says. ([email protected])0537 GMT - A failure by the Reserve Bank of Australia to raise interest rates a notch further on Tuesday, following all its recent hawkish commentary and higher-than-expected inflation data, would threaten the central bank's credibility regarding its commitment to the inflation target, says Shane Oliver, chief economist at AMP. Still the expected decision to hike may not be unanimous, he adds. Expect RBA commentary to continue warning that it may have to raise interest rates further. While there is still a high risk of a sixth hike to 5.1% in December of February, it's not AMP's base case yet, he adds. ([email protected]; @JamesGlynnWSJ)0442 GMT - The Philippine central bank expects inflation to remain elevated in October, driven by higher domestic fuel, electricity and transport costs. The Bangko Sentral ng Pilipinas expects this to be partly offset by lower prices of key agricultural commodities, including rice, vegetables, meat, and fish amid favorable supply conditions. The central bank said it will continue to assess the impact of the latest Middle East developments on the Philippine inflation and economic outlook. The BSP projects inflation to settle between 7.1% and 8.1% for October, compared with 7.2% in September. The October data are due next week.([email protected])0439 GMT - Technology and healthcare remain the key sectors to watch with regard to the U.S. midterm elections, says Colin Graham, Robeco's head of multiasset strategies. The U.S. administration has supported investment in AI, which continues to provide a powerful structural tailwind, he says in a note. Healthcare is another area where the election outcome could influence sentiment, given its longstanding role as a political battleground, he says. "Our base case is that markets will look through the election relatively quickly and refocus on growth, inflation and earnings." The biggest risks are a renewed rise in inflation expectations, higher bond yields or a deterioration in earnings momentum, he adds. ([email protected])0433 GMT - The security incident at Binance has raised concerns about the safety of holding assets on exchanges, adding to Ethereum's woes, says Linh Tran at XS.com. The breach has made market sentiment even more cautious, despite Binance's assurances that customer funds remain safe. There is still insufficient information to conclude that the incident is related to the security of the Ethereum network, but until more details emerge, investors may hold back on new purchases or reduce cryptocurrency exposure, Tran says. That comes as spot Ethereum ETFs had already seen consecutive sessions of net outflows. "Even if concerns surrounding Binance subside, ETH still needs a clear improvement in buying demand to recover." Ethereum is down 0.9% at $2,240, paring earlier losses. ([email protected])0413 GMT - The BOJ's hawkish hold makes it clear that it sees further rate increases ahead, says Krishna Bhimavarapu at State Street Investment Management. "More importantly, the Bank is increasingly confident that its price-stability objective is being achieved and that inflation expectations can be anchored around 2% through a self-sustaining wage-price-consumption cycle," the economist says. That's a notably more upbeat assessment than the government's still-cautious stance on whether Japan has really exited deflation. But a still-fragile growth backdrop justifies not rushing the next hike, says Bhimavarapu. Japan's 3Q GDP is likely to show a loss of momentum, with consumption still the weakest link. The GDP print will therefore matter considerably for whether December becomes the next window for a rate increase. ([email protected])