Good morning to bond markets ‘round the globe … from Japan …
May 27, 2025 at 6:41 AM UTC Bloomberg: Treasuries Rally With Japan Bonds as MOF News Boosts Sentiment
A rally in Japan’s bond market has spilled over to US Treasuries, as signs that Japanese authorities may look to re-establish stability after a tumultuous period fuel a spate of bond buying across global markets.
Yields on 10-year Treasuries fell by five basis points while those on 30-year bonds slid as much as eight basis points. The moves followed a plunge in long-term Japanese bond yields after the country’s finance ministry sent a questionnaire to market participants regarding appropriate issuance amounts. Japan’s 20-year yields dropped as much as 19.5 basis points to 2.31%, while 40-year yields declined 25 basis points.
Some traders took the questionnaire as a sign that Japanese authorities are seeking to restore calm in the world’s third-largest bond market, in part by cutting back bond supply in an attempt to cushion the blow of slowing demand.
“That potential lower issuance is giving Treasuries a nice helping hand,” said Michael Brown, strategist at Pepperstone Group in London. “For those seeking to buy long-term debt, lower JGB supply could force them into the Treasury complex.”
… and while it would be nice to get a chance to buy ‘support’, the fact is momentum has cheapened up to ‘oversold’ levels and ROLLED OVER supporting lower yields, at least on a shorter-term (ie DAILY) time-frame BUT …
2yy WEEKLY: watching ‘support’ (TLINE) up nearer 4.11 …
… largely due to idea that momentum (stochastics / bottom) continues to grind towards more overSOLD levels …
… and so the same (stochastics) signal is conflicting itself but what I feel it comes down to is your time-frame … AND the Fed … I’ll leave you to it, then, betting on CME FedWatch tool to be <right / wrong, please choose one> and move along. But first … here is a snapshot OF USTs as of 705a:
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
NEWSQUAWK US Market Open: Stocks at highs, NQ +1.7% & DXY gains; reports suggest EU to focus on critical sectors in bid to avoid US tariffs … Bonds bid and yields slump on MOF sources, Gilts outperform on this & reports that the UK will be shifting to shorter-term borrowing in order to lower its interest bill … JGBs were initially weighed on by BoJ’s Ueda reiterating hiking plans. Action which, pushed JGBs to a 139.08 low overnight. Thereafter, the benchmark rallied on supply related sources to a 139.49 peak. Japan’s MOF is to consider tweaking its bond issuance composition, via Reuters citing sources. A tweak that could include the trimming of super long-term debt … The above has carried into US trade. Lifting USTs by 10 ticks at best to a 110-13 high. Yields lower across the US curve but, unsurprisingly, given the long-dated focus to the MOF reporting that area is leading the move down, sparking bull-flattening. Fed’s Kashkari stuck to the data-dependent approach that has characterised his commentary in recent days and weeks. Focus ahead now on US Durable Goods and Consumer Confidence due before a 2yr Note auction.
Reuters Morning Bid: Trade confusion and long yield relief. Long bond blues stress the 'bedrock'
… Many non-bank private investors embrace long-duration debt. This includes pension and insurance funds that crave steady long-term income streams from relatively safe government credits in order to match their long-term liabilities.
Others, such as mutual funds or hedge funds, may be less willing to absorb outsized price risks.
And as exchange-traded funds that track long-term Treasuries show, it's been a dire few years.
The iShares ETF of U.S. Treasuries with remaining maturities of 20 years or more is down 3.5% for the year so far, almost as much as the loss in Wall Street's tech-heavy Nasdaq equity index.
It has now halved in price since it peaked during the pandemic and is down 30% from the eve of the COVID-19 outbreak.
While "terming out" government debt to longer maturities has long been seen as a prudent practice to reduce roll-over risks with too much short-dated borrowing, this strategy may now contain frailties of its own due to shifts in the investor base.
With economic and policy uncertainties rife, attention is shifting toward private investor commitment and market stability…
Finviz (for everything else I might have overlooked …)
Moving from some of the news to some of THE VIEWS you might be able to use… here’s some of what Global Wall St is sayin’ …
Some GOOD news for a change …
26 May 2025 ABN AMRO: A wage-price spiral is now much less likely
Wage growth, and the risk that it could keep inflation elevated, is now much less of a worry than early last year. In the eurozone, current wage growth is still elevated, but leading indicators point to a sharp decline this year, and businesses have been absorbing wage growth into their margins. We therefore see the risk of a wage-price spiral to now be very low. In the Netherlands we also expect an easing in wage pressures, albeit a more gradual one. In the US, wage growth was less of a worry to begin with; that remains so, but the recent spike in inflation expectations bears watching.
… said another way … NO wage-price spiral for you … very good … know something … come back in ONE YEAR …
Live from the French Open and Roland Garros … OK no, not really but …
… Our US economic data projection, based on past levels of financial conditions, has been highlighting since early April that activity data in the US could deteriorate, and so far data releases appear to have been realizing broadly in line with that.
… stocks looking more and more on the fence (my phrase), technically from best techAmentalists ‘out there’ …
May 27, 2025, 2:37 CitiFX: US stocks look more neutral
S&P e-minis and Nasdaq 100 futures have hit their respective targets as suggested by hte crossover in weekly slow stochastics (go deeper in our note here). From here, it looks less rosy and we turn neutral with momentum turning overbought while looking to a break of levels to add to convictions.
S&P eminis (ES1) S&P e-minis have slipped lower after coming close to the 6000 handle last week. This means that we have come very close to the target level suggested by a cross higher in weekly slow stochastics. From here, we are less bullish:
As a recap, we had flagged a few weeks ago that a cross higher in weekly slow stochastics was a strong bullish indicator, having suggested gains of 10% each time it happened in the past decade.
With this rally seeing a high of 5994, we think we have hit that target level
Daily slow stochastics has crossed lower from overbought territory. Meanwhile, weekly slow stochastics has entered overbought territory. Both suggest we could see a slowdown in the rally seen since early April
The potential monthly morning star formation suggests we could see medium term bullishness, but we remain cautious as trade negotiations and US fiscal concerns still dominate attention
We prefer to wait for a break of key levels again to look for direction signals. To the topside, 5994, the May high will be the resistance level to watch. A break above that would suggest we could again approach the 6162 highs of 2024.
On the downside, near term support is likely at 5804. However, the level to watch would be 5723, the 55w MA. This has previously been a key level for S&P e-minis, and a break below that would suggest significant downside again.
German analyst out yesterday but catching up on activity post EU tariff delay AND a look at where markets are dislocated (one mans dislocation is another mans P&L ‘dipORtunity’ …
…This week is half-term in the UK so activity could be a bit slower which could have been a problem if we were still facing the June 1st 50% tariff deadline for the EU, but yet again we saw a deadline delay over the weekend back to the original July 9th date after a positive call between Trump and EC President von der Leyen. The Stoxx 600 (+0.99%) made up for Friday's fall (-0.93%) after the delay but even Friday's fall showed that markets are getting more accustomed to Trump's threats and now partly assume the full threat won't immediately materialise. There is certainly fear fatigue. Interestingly the dollar hasn't rallied since the news on Friday and has instead edged lower. Investors are seemingly of the view that continued aggressive tariff headlines chip away at investors desire to hold US assets. 10yr European bond markets rallied 1-3bps yesterday with 30yr yields 2-5bps lower…
…Recapping last week even if it feels a long time ago now writing this on a Tuesday morning. Markets had a rougher time as investors grew more concerned about the US debt trajectory, whilst trade fears also returned after Trump threatened a fresh round of tariffs. That was clear right from the start of the week, as markets reacted to the news of Moody’s credit rating downgrade for the United States. But even after the downgrade, the fiscal situation remained top of the agenda, as the House of Representatives narrowly voted in favour of the latest tax bill. That would extend the tax cuts from Trump’s first term and raise the debt ceiling by $4tn, so it offered markets a fresh reminder about the scale of US deficits. Indeed, on an intraday basis the US 30yr yield got as high as 5.15% on Thursday, something we haven’t seen since October 2023, and a level we haven't closed at since 2007.
Then on Friday, markets took a further hit after Trump threatened to place a 50% tariff on the EU from June 1. He said that the EU had “ been very difficult to deal with”, and that the “discussions with them are going nowhere! ” So that immediately led to a fresh risk-off move, with equities ending the week lower right across the world. In fact, the S&P 500’s weekly decline of -2.61% (-0.67% Friday) was the biggest since the week of Liberation Day. Meanwhile in Europe, the STOXX 600 ended a run of 5 consecutive weekly gains, falling -0.75% (-0.93% Friday). Obviously the weekend delay has helped market recoup some of last week's (and all of Friday's) losses.
Whilst equities were losing ground, it was also a tough week for sovereign bonds thanks to the fiscal concerns, particularly at the long end of the curve. For instance, the 30yr Treasury yield was up +9.3bps last week (+0.2bps Friday) to 5.04%. That was echoed elsewhere, with the German 30yr yield up +4.9bps to 3.08%, whilst Japan’s was up +6.1bps to 3.02% before this morning's big rally. Sovereign bonds at shorter maturities performed much better, with the 2yr Treasury yield down -0.8bps to 3.99%, whilst the 10yr yield was up by a smaller +3.3bps to 4.51%. And in Germany, the 10yr bund yield fell -2.3bps last week to 2.57%, ending a run of 3 consecutive weekly increases…
27 May 2025 DB Mapping Markets: What are the biggest market dislocations? May 2025
Markets often behave inconsistently, with patterns that don't make obvious sense across asset classes. This got us thinking about where some of the biggest dislocations are today, considering what looks odd, and therefore what might be ripe for a correction.
Several sprung to mind over the last month. For instance, even as concerns are mounting about fiscal policy and debt sustainability, European sovereign bond spreads have continued to tighten. Meanwhile, Japan's 30yr yields were recently as high as Germany's, despite the huge fiscal stimulus about to arrive in the latter. To some extent, both these points speak to a broader dislocation, which is that global bond yields still aren’t particularly high by historic standards, despite record public debt.
Elsewhere, we note how US inflation swaps have barely moved since Liberation Day, even as several inflation indicators are gaining momentum. We also look at how some of the countries most exposed to the tariffs, like Canada and Germany, have seen their assets perform relatively well in the circumstances…
…1. Despite the market’s huge concerns about global fiscal policy (evident from long-end bond yields), European sovereign bond spreads keep tightening to multi-year lows…
2. Japan’s 30yr yields recently traded as high as Germany’s 30yr yields, despite the huge fiscal stimulus that’s coming to Germany…
3. Both these points speak to the wider dislocation that global bond yields still aren’t particularly high by historic standards, despite record public debt. For instance, the 10yr Treasury yield is around 4.5% (its pre-GFC level), even though US public debt is more than double what it was then.
Although bond yields have risen considerably since the pandemic, they are still not that high by historic standards. Even now, the 10yr Treasury yield around 4.5% is broadly around its pre-GFC levels in 2004-2007. And it remains clearly beneath its levels throughout the 1970s, 80s, and 90s, when it would regularly trade above 5%.
That is despite a huge surge in US public debt. For instance, US federal debt held by the public stood at just 36% in fiscal year 2005, but had surged to 98% by fiscal year 2024. Moreover, the budget deficit is running above 6% of GDP, so that number is still rising fast.
To some extent, this theme is evident at a global level, with several countries running large deficits with no plan to get the budget back into balance. Indeed, France hasn’t run a budget surplus since 1974. Yet its 10yr yield is only at 3.2%, and no higher than its pre-GFC levels when its public debt was far lower. Of course, many other factors come into play in determining bond yields, but the shift is nevertheless striking.
4. US inflation swaps have barely moved since Liberation Day. Although investors could be completely looking through the impact, that’s not happening for other assets, and several inflation indicators are picking up…
5. Among the advanced economies, some of the countries most exposed to tariffs have seen their assets perform relatively well in the circumstances…
Netherlands note …
27 May 2025 ING Rates Spark: Back to tariff headlines, but fiscals still matter
Long-end yields are experiencing some relief, but we think US yields will find it particularly difficult to shake off a bearish taint over the coming weeks and months. While tariff headlines have taken over, the fiscal trajectory still matters. Euro rates may feel a greater pinch from the 50% tariff threat, even after the deadline was delayed …
…US rates will struggle to shake off the bearish taint Over in the US, a benign PCE deflator will do little to dispel a bearish tilt in long-end US Treasuries if a spike in tariffs remains a real threat. With the passage of the tax bill through the House, the focus is now on the changes as it makes its way through the Senate to alleviate market concerns around the fiscal trajectory. There is also ongoing hope for regulatory relief over the summer, given renewed comments from Treasury Secretary Scott Bessent on the topic.
Meanwhile, long-end rates have also experienced some relief as the Japanese Ministry of Finance sounded out the market regarding appropriate issuance amounts in government bonds. A weak 20y JGB auction last week had additionally fuelled the global bear steepening of yield curves.
To note, 10y UST yields had gone into the extended weekend above 4.5% despite the risk-off sentiment, with spreads over SOFR even widening. Resuming trading in Asia, they slipped below that threshold, but US Treasuries will still have to go through a round of supply this week to test the investor appetite, starting with new 2y Treasury notes today and followed by new 5y and 7y notes over the following days…
Swiss weigh in as masters of the obvious AND with an explanation …
The US long weekend was marked by aggressive policies and then a retreat, but that still leaves its mark on financial markets. The US dollar remains near its recent lows against major currencies. Investors are concerned that the retreats may not be comprehensive, and that economic behavior will still have to adjust to accommodate wild policy swings.
The US sentiment data due today is still burdened by political partisanship. The consumer confidence figures are likely to say more about the respondents’ cable news channel of choice than anything in the real world. The comments section of the Dallas Fed manufacturing survey should cover some of the bigger trade tax imposition/retreat events.
US April durable goods orders data is likely to be messy. Consumers have been favoring fun over goods for some time. The factory building boom slowed abruptly at the start of this year. But foreign customers of US durable goods may have rushed to stockpile out of fear of retaliatory tariffs. The range of forecasts for today’s numbers is unusually wide…
US President Trump has retreated from their threat to aggressively tax US consumers of European products, delaying the suggested 50% tariff to July. These retreats are so frequent that investors should rationally expect them. So why do markets still react to the initial announcements, as happened last Friday?
First, even if no one thinks the threats will be carried out, firms will need to put in place some insurance. For instance, supply might be diverted from other markets to the US to build stockpiles before a threatened tariffs. Taking out insurance against low probability events still incurs a cost.
Second, wild swings in policy making increase risks in markets—and a general sense of unpredictability requires a risk premium. In addition investors perceive two factions on trade policy—the conventional and a more radical faction. Aggressive tariff policies suggest the radical faction is dominating Trump, and markets favor the conventional over the unpredictable.
Third, aggressive tax increases are sensational and attract media coverage. The retreats are rather more mundane. This may shape consumers’ perceptions of policy, if the potential damage of tariffs is remembered and Trump’s retreats are forgotten. If consumers blame price increases on tariffs that may not actually materialize, it opens the way to more profit-led inflation by retailers.
… finally, a(nother) look at the economic week ahead …
May 26, 2025 Yardeni: ECONOMIC WEEK AHEAD: May 27 - 30
The week ahead is starting with another tariff whiplash. On April 2, President Donald Trump imposed hefty reciprocal tariffs on America's trading partners but postponed them for 90 days on April 9. On Friday, he threatened new tariffs on the European Union, Apple Inc., and perhaps Samsung and other tech giants to be named later. But on Sunday, he postponed Friday's June 1 tariff of 50% on the EU until July 9. So much for liberation from Trump's Tariff Turmoil (TTT). All of which gives this week's data an air of relative irrelevance as the White House zigs, zags, and zigs almost daily.
This will make upcoming speeches by Fed officials extra newsworthy, offering insight into how they think TTT might impact monetary policy. And in the aftermath of Moody's downgrading the US to "Aaa" on May 16, financial markets will pay close attention to events on Capitol Hill. Namely, how the deficit-bloating "Big, Beautiful Bill" that the House passed last week lands with Senate Republicans, as well as the Bond Vigilantes.
Let's briefly review this week's data outlook:
(1) Consumer confidence and sentiment. Trump's April 9 postponement of the April 2 "Liberation Day" tariffs by 90 days sent stock prices soaring. May's Consumer Confidence Index (CCI, Tue) is likely to reflect that V-shaped rebound. May's CCI survey should show that the labor market remains solid, which we expect jobless claims (Thu) to confirm (chart).
Yet the whiplash factor is worth keeping in mind for May's Consumer Sentiment Index (Fri), which could remain depressed by tariff worries and high inflation expectations. (The CCI is more sensitive to employment, while the CSI is more sensitive to inflation.)
… And from the Global Wall Street inbox TO the intertubes, a few curated links …
. Inflation has for several years been moving down toward the Fed’s 2% inflation target. But the consensus now expects inflation to rise over the coming quarters, driven by tariffs and by upward pressure on housing inflation, see charts below.
Sources: Bloomberg, Apollo Chief Economist
Nothing like kickin’ off holiday shortened week with some (non-voter)FOMC speak …
Bloomberg: Kashkari Favors Maintaining Fed Rates Until More Tariff Clarity
… "It may take months or years for negotiations to fully conclude, and there could be tit-for-tat tariff increases as trading partners respond to one other," he said…
…"These arguments support a stance of maintaining the policy rate, which is likely only modestly restrictive now, until there is more clarity on the path for tariffs and their impact on prices and economic activity," Kashkari said.
"Personally, I find these arguments more compelling given the paramount importance I place on defending long-run inflation expectations," he said…
Trade war ON and back OFF again over the weekend … at least as far as the EU concerned and so,a VIEW …
May 27, 2025 at 4:00 AM UTC Bloomberg: The hitchhiker’s guide to US trade “Oh no. Not again!” The cycle of tariff threats is happening once more.
Oh No. Not Again! A key moment in The Hitchhiker’s Guide to the Galaxy comes when the ultimate improbability drive suddenly calls into existence a sperm whale and a bowl of petunias, high in the stratosphere above a lonely planet. As they whiz downward toward the end of their brief and improbable existence, the whale excitedly comes up with words for things like “air” and “tail” and “wind” and, lastly, “ground.” Meanwhile, according to the guide:
The only thing that went through the mind of the bowl of petunias as it fell was: “Oh no. Not again!” Many people have speculated that if we knew exactly why the bowl of petunias had thought that we should know a lot more about the nature of the universe than we do now.
We can all sympathize with the petunias after a long weekend of US trade policy toward Europe. Tariffs of 20% were on pause until July; then raised on Friday to50% as of June 1; then delayed again on Sunday to 50% as of July 9. This was the Friday presidential pronouncement:
This would have as big an impact on the global economy as a sperm whale hitting the ground from a great height. Yet we’ve been through a cycle of adopting and delaying tariffs in just three days, repeating the exact same cycle that played out in April. “Oh no. Not again!” …
European stocks’ round trip was spectacular. After selling off, the Stoxx 600 had regained most of the ground by the close on Friday, assuming that President DonaldTrump would soon climb down. Sunday brought news of the delay following Trump’s chat with the European Commission’s Ursula von der Leyen, and Monday saw the remaining damage made good. In sum, for the stock market, nothing had happened. The selloff barely lasted longer than the petunias:
