US bond yields know no limits

Macro
Kay Van-Petersen

Global Macro Strategist

Summary:  Overnight market action saw some very significant levels breached, particularly in US government bonds, where yields are hitting new highs across the curve. These moves will likely reverberate globally.


The thing about global macro, is it literally comes down to a handful of key days in a year. There are the days that have huge implications from a need-to-react function, say an event like Brexit, the Trump victory or Swiss National Bank's franc de-peg, that can make you a fortune or lose you the ranch.

Then there are the slightly more ‘ninja sessions’, when the markets cross exceptionally significant levels. The overnight session was an example of the latter, and it's worth bearing in mind that folks sometimes miss the ‘ninja session’ and read the initial market reaction or lack thereof as being correct.  

US bond yields are breaking out to new cycle highs, as we took out the congestion in the 10-years (3.12%) and even more importantly in the 30-years (3.26%). As we continue the Asia morning we are at 3.18% on US 10-yr treasuries (yes… that would have been considered high in the 30-yr bonds just a few weeks ago) and 3.34% on the 30-yr bonds. The latter breaks a big multi-year resistance line (think US 10-years at that 2.60-70 level and then again at 3.00-10).

This was correlated to a few big things overnight, chiefly the US once again demonstrating that it is on fire versus the rest of the world (this has been a Macro Monday mantra and continues to be the most important theme in global macro).

ISM services came in at 61.6a vs. 58.0e or 58.5p – its all-time highs surpassing the 59.6 peak in 2004. ADP smashed it at +230k a vs. 185k e. Suggesting US 3Q GDP will be stronger than expected.  

Meanwhile as we are getting this historical move in yields and economic data, equities were bid, volatility ticked lower (VIX at 11.61, c. -4% for the session -10% last five days), USD went up yet predominantly against the majors and less significantly against EM FX.

A few things seem to be lagging, chiefly gold (at c. $1,200/oz) which should be easily $10-20 dollars lower from here given the higher USD and the higher breaking out in US yields. Japanese government bonds which at c. 13-14bps should be breaking out above 20bps. Even bunds at 47bps should be pushed higher, albeit that has to be measured against the noise in Italy and its budget process. Bottom line… the rest of the world’s global yields cannot exist in a vacuum as the US pushes higher. It looks like things are setting up for further legs in the USD and a potential nipping in the bud of the technical bounce we had seen in EM assets. CNH at 6.9065 feels like it should be much higher… as should some of the other EM currencies. Also downside expression in equities, which can be cheaply expressed through long puts/ put spreads resonate with this writer.

The price action on S&P Futures & Nasdaq-100 in the Asia morning session at -45bps and -55bps is more of a market that is starting to digest the implications of higher US yields. Incidentally guess where S&P500 dividend yields are? That’s right 2.0%, that with 1-yr treasuries at 2.60%, 2-yr at 2.88% and 5-yr at 3.05% (yes 305 bps). 

Dollar-yen lift-off?
US 10-year bonds in defiant lift-off
It's the same story with US 30-year bonds
EURUSD dips below 1.1500
New lows in gold look likely
And new highs in Japanese government bonds are also on the cards

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992