Real yields fall further

As inflation breakevens rise to a new pandemic high

Chart of the Day

Despite the disappointing jobs report on Friday, the 10-year breakeven inflation rate jumped by 5 bp to 2.5%. With the 10-year nominal yield pretty steady, that pushed the real TIPS to yield down by almost as much. The US 10-year TIPS yield has now moved 14 bp lower in the past week, while the breakeven inflation component has moved 9 bp higher. Lower real yields help to explain some of the positive moves in assets like gold last week and tech stocks at the end of the week, after their initial sell-off.

Macro

The latest job reports showed the US labor market added just 266,000 jobs in April, while Canada's lost 207,000 as it entered another period of lockdowns. The jobs recovery in Canada remains ahead of that in the US though.

The only small rise in the US, which was just one quarter of the consensus forecast, was because employment fell back in several sectors.

The US Citi surprise index, which measures how far above or below the data are versus economist expectations, is now much weaker than for the other major regions.

German industrial production growth increased by 2.5% MoM in March, which took the YoY rate to 4.9%. That high YoY rate is because we are now comparing to the weak March of 2020.

Markets

Non-commercial traders increased their net short position in the USD again last week, but only slightly.

Despite the drop in real rates, non-commercial traders' net position in gold was little changed. They may soon hold a larger net long in silver.

Copper reached an all-time high last week - it’s done much better than positioning suggests.

Most commodities continue to do very well.

Equity markets recovered at the end of last week, helping the VIX to fall to a low 16.7. But the SKEW, a measure of perceived tail-risk, rose and is still quite high.

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