Bond yields lower as stocks fall
Concerns related to a couple of US regional banks contributed to an abrupt turnaround in US equity markets yesterday. This was accompanied by a fall in US bond yields amid a mini “flight to safety”. The latter though didn’t extend to the dollar, which lost ground across the board. The euro has added to its recent gains against the US currency and trades just north of $1.17 this morning, well off its lows of just under $1.1550 earlier this week. Sterling has also extended its gains against the dollar, trading around $1.3440, though it has given up some ground against the euro, back above the £0.87 level this morning from highs yesterday of around £0.8660.
The “flight to safety” saw US government bond yields close 5-7bps lower yesterday. They have fallen further overnight, by another 3-4bps, with the short-end of the curve continuing to lead the way, as Fed cut bets firm, and 10-year yields reaching new lows for the year just below 3.95%. German bonds are playing catch-up this morning, with 10-year yields down around 4bps (to 2.53%) in early trading, while equivalent UK yields continue their march lower, down another 3bps (to 4.48%) this morning bringing the cumulative decline this week to about 20bps.
The main US equity indices ended down a bit more than half a percent, having been up more than 0.5% at one stage during the day’s session, while the futures market points to a weak opening later today. European stocks have opened lower this morning. They are off around 1.5%, more than reversing yesterday’s gains.
ECB President Christine Lagarde reiterates that the central bank is in a “good place”, with the current stance of monetary policy (i.e. the deposit rate in broadly neutral territory) “well positioned to face future shocks.”
Looking to the day ahead, a final reading for September inflation is due in the Euro area. It is expected to be unchanged from the “flash” reading, which showed headline inflation nudged up to 2.2% last month from 2% in August (with core inflation unchanged at 2.3%). A few members from the main central backs are scheduled to speak over the course of the day.