Benchmark US yield blasts yet higher

Financial markets are continuing in the path they've taken the past few days with US yields and the dollar still climbing, equities suffering and emerging markets looking like they're heading for trouble.

"The key events across markets was the US bond yields breaking higher, with the 10-year benchmark closing near 3.09%. One wonders if this is bad for the dollar in the longer run but for now the focus is on the advantage to the US in terms of yield advantage," says John J Hardy, Saxo’s Head of Forex Strategy.

For the moment though, he adds, this is very bad for emerging markets, given the greenback's status as the world's reserve currency. "When the US dollar goes up and when US yields go up too all of this EM exposure to dollar-denominated debt puts a lot of focus on these countries," Hardy says. The Turkish lira is especially exposed to systemic risk and the lira is plumbing new lows ahead of the June election there.

Meanwhile, Japan's GDP was very disappointing with "unbelievable nominal growth at a negative 0.4% QoQ" Hardy says. This economic contraction, he adds "will keep the Bank of Japan away from any move on policy," he adds.

A side effect of the dollar/US yield developments is that equities are "stuck in the mud", reports Peter Garnry, Saxo’s Head of Equity Strategy. The S&P futures index, for example, met pretty hard resistance and has been selling off since. Other hurdles for equities include North Korea's cancellation of scheduled talks with its southern neighbour and some fresh and disappointing macro news out of Europe. 

Finally today, Althea Spinozzi, from Saxo’s bond trading desk, notes that the US 10-year yield was very close yesterday to 3.10%, with its highest intraday being 3.09%. "The US 30-yr to 2-yr spread widened up a little but we're nowhere near a steeper curve," she adds. In Europe, these's pain for the price of sovereigns too because of that fresh evidence of that the economy is slowing.

You can access both of our platforms from a single Saxo account.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)