Rates Spark: Tech Jitters

2025-01-28 00:20:00 ET

Summary

• The DeepSeek story was in the news last week, but the market reaction was left to Monday. At the front end, two Fed cuts are now fully priced again for the year.
• So far we’re on a one-day move post the tech re-assessment. But US Treasuries can show a meaningful reaction lower in yields from here should this turn into a multi-week reaction to the downside for stocks.
• In the eurozone, the belly of the curve rallied with the 5y point of the swap curve falling more than 5bp.
• We also saw Bunds outperforming versus swaps while other eurozone govies lagged.

By Padhraic Garvey, CFA and Benjamin Schroeder

Delayed reaction to a story that was doing the rounds last week

The latest dip lower in market rates stems from a risk-off episode involving the reassessment around the perceived AI lead of US companies amid a new viable contestant out of China - as (tech-)stocks retreated, bonds and rates rallied. At the front end, two Fed cuts are now fully priced again for the year. In the eurozone, the belly of the curve rallied with the 5y point of the swap curve falling more than 5bp....

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