Rates Spark: Market Discount Shifts To Un-Discounting Some Recession Risks

2025-05-09 04:30:00 ET

Summary

• The 10yr yield is now closing in on 4.4%. The 2yr yield is also well up on the day. It appears that the market discount is moving away from a blind recessionary discount.
• The trade deal with the UK pushed in the same direction but was not determinative, in our opinion. A deal with China would be a much bigger deal, and that's what the market is really reacting to.
• Markets will be watching inflation and growth data closely for the possibility of an accelerated easing trajectory.

By Padhraic Garvey, CFA , and Michiel Tukker

US Treasuries not pointing to a recession

Pricing was not great on the 30yr auction. But at the same time, this was a fast market into auction, with yields on a persistent rise, which likely acted to add to an overall concessionary bid at auction. Beyond that, the breakdowns between indirect, direct and dealer bid did not have a big story to tell. The cover was a tad tepid, but in the end safely away. The underlying up-move in yield has been the story of the day, on a risk-on underpinning. The 10yr yield is now closing in on 4.4%. It appears that the market discount is moving away from a blind recessionary discount. The 2yr yield is also well up on the day, heading towards 3.9%, on a day where the curve has simply shifted higher....

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