• Today’s trading should show the Trump (bond) put at work, including the hoped-for positive spill-overs on other assets. The US president buying time/giving room to negotiate trade arrangements with the US, yesterday triggered a sharp bounce in US equities and so did Asian and European indices this morning. However, after a swift first reaction, the move stalls. European indices mostly trade off the opening top (EuroStoxx 50; +5.0%). US indices return about 2% of yesterday’s gain (S&P 500). (US) Bond markets are looking for a new equilibrium, balancing reduced need of immediate Fed help and a further hoped-for reduction in risk premia at the long end of the curve. The Trump tariff-put clearly isn’t of the same nature as an outright ‘Fed-bailout’ that occurred e.g. at the time of corona. US bond investors are taking a wait-and-see mode. (Political) policy uncertainty remains high. A flaring-up of the sell-US trade isn’t excluded yet. Intraday, US yields temporary lost a few additional bps after the release of softer than expected US March CPI (-0.1% M/M and 2.4% Y/Y from 2.8% for headline; 0.1% M/M and 2.8% Y/Y for core). This is good news, but is a photo from a different era before extreme turmoil from the reciprocal tariffs culminated. It’s a better starting point, but tells little about the dynamic going forward. The US yield curve steepens with the 2-y declining 8 bps. The 30-y yield adds 2 bps. This evening’s $22bn 30-y Treasury action for sure is a better pointer on the strength of the Trump put. For now we’re not impressed by the easing in risk premia at the long end of the US curve. German yields show different dynamics. The German 2-y yield jumps 11 bps. The 2-y swap adds 4 bps. This captures reduced expectations for ECB support to counter demand pressures from the tariffs as well as an easing of the safe haven bid for bunds. The 10-y currently adds 2 bps. The jury is still out, but if long-term Bunds indeed are gaining a bigger overall safe haven role, the modest decline in bonds/rise in yields suggests investors are in no big hurry to return protection. The US government probably hopes for an orderly further weakening of the dollar. In this respect, Trump’s tariff pause at least didn’t change a poor USD performance of late. DXY falls from an 103 open to currently trade near 101.8. EUR/USD regains strong traction testing the 1.11 area. The YTD top (1.114) is within reach. The 1.1276 2023 top is looming on the horizon. Also Brent oil fails to stay north of $65b.
• Trade-related uncertainty earlier this week put hefty pressure on smaller, less liquid currencies including the likes of the Norwegian and Swedish krone and the CE currencies (CZK, HUF, PLN). They gained against the euro in thin post-European trading yesterday, but mostly trade again in the defensive today. Another pointer that overall trade-related uncertainty still lingers? A similar narrative applies to sterling. EUR/GBP yesterday evening dropped from the 0.865 area to about 0.855. Sterling today gains against an overall weak dollar, but EUR/GBP trades again at 0.86+. In this respect, the modest easing at the LT end of the UK yield curve (30-y -12 bps at 5.45%, only slightly more than halve of yesterday’s rise) also doesn’t give that much comfort.
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