Rates Spark: It's Not Just U.S. Rates Exploring New Highs

2025-01-14 01:35:00 ET

Summary

• While rates on Monday stabilised, markets have reassessed their Fed expectations quite noticeably. In fact, the stabilisation was only after touching new post-payrolls bond yield highs.
• Markets are likely to maintain their bearish undertone until data signals otherwise.
• ECB members are trying to head off spillovers, but likely to little effect as EUR rates have also risen for homemade reasons.

By Padhraic Garvey, CFA and Benjamin Schroeder

US Treasuries comfortable at new local highs for yields

The impact effect of Friday's payrolls report was to push the 10yr yield up to a high of 4.79% on the day. Monday then saw 4.80% nipped at a few times. It's a similar story for the front end, as a new high north of 4.42% was touched. Even if now off these highs, this price action suggests a degree of comfort at these new lofty levels post payrolls. Both the 2yr and 10yr yields have seen 5% in the current cycle. The difference is the 2yr is unlikely to see 5% again in this cycle. But the 10yr yield is primed to head in that direction. We don't have a rate hike risk, so the 2yr should remain contained. But we do have a supply / inflation combination to continue to worry about....

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