Markets
By upping the amount of long-term Treasury buybacks in off-cycle timing (two weeks after the quarterly refunding statement), US Treasury Secretary Bessent implicitly revealed to markets there’s a yield pain barrier. But while yields fell around 9 bps in a kneejerk, perhaps shocker, reaction yesterday, they are recouping more than half already today. First of all, the increase in size (at least double to $4bn per operation) is all but irrelevant in the broader picture. Second, it doesn’t address the underlying: soaring budget deficits and a relentlessly rising debt mountain. Third, Bessent blinked and it’s in markets’ nature to now find out how firm the UST’s commitment actually is. Last but definitely not least: rising oil prices towards the $94 barrier amid president Trump warning Iran of an economic D-Day. The 30-yr yield enjoyed the biggest rally yesterday but underperforms the rest of the curve currently by adding about 5 bps. Other changes vary between +3.3 bps (2-yr) and 4.7 bps (10-yr). European/German bond yields change less than 1 bp across the curve. Especially the long end of the curve stays put near the recent multi-year or even multi-decade highs. Intra-EMU spreads (vs. swap) have been grinding higher throughout August with underperformance by Italy along with semi-cores Belgium (highest since early May) and France (highest since October 2025). Given their public finance track record, it suggests the topic remains firmly on the market radar.
US yields are already returning from their lows, but the dollar isn’t. It could be indicative of the greenback having lost some credibility following what some say is politics fiddling with financial markets. EUR/USD attempted to take out the 1.17(03) resistance level but failing to do so triggered some minor return action back to 1.1687 currently – slightly higher than yesterday’s closing levels. Because of USD/JPY appreciating, the trade-weighted index DXY keeps steady around 98.8. Cable (GBP/USD) touched the highest level since February (1.3659) before paring gains somewhat to 1.3637. Economic data was second-tier but in any case included a much better-than-expected Philly Fed business outlook indicator and fewer jobless claims than anticipated (206k vs 210k). The Philly Fed gauge rose from 41.4 to 47.4, the highest since April 2021 and defying expectations for a decline to 24.8. Details were solid with the employment series jumping to a 4-yr high. The forward looking indicator (6 months ahead) soared to a 1983-high!
News & Views
The Swedish Riksbank kept its policy rate unchanged at 1.75% today. The central bank assesses that the probability of a rate increase later this year remains, but the picture is not clear-cut. While growth and inflation have been higher than was forecast in June and underlying inflation risks remain, companies’ pricing plans have been subdued, disruptions in global supply chains have declined and the labour market has been somewhat weaker than expected. In June, the Riksbank had put the chance of a 25 basis-point hike in 2026 at 50%. Swedish money markets are somewhat more convinced, putting the probability around 90%, but they weren’t influenced by today’s outcome. The Swedish krone loses ground, having hoped for a stronger signal by the central bank while higher energy prices weigh as well. EUR/SEK rises from 11.01 to 11.09, approaching 11.11 resistance.
The UK’s CBI Industrial trends survey showed manufacturing order books improving in August. The rebound comes after a sharp deterioration over April-July. Total order books were reported as below “normal” to the least extent since November 2024 (-25% from -45%), with export order books recovering to “normal” for the first time in over four years. Output volumes fell again in the three months to August, but at a slower pace relative to July. Manufacturers expect the pace of decline to slow further in the three months to November. Selling price expectations strengthened in August (+22% from +11% in July) and remain above historical norms (+8%). Stocks of finished goods were seen as adequate in August, standing slightly above the long-run average.
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