Real yields jump

Bad news for tech stocks, but good news for financials

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Chart of the Day

It was another big day for the bond market, this time with US yields rising across the curve - even the 5-year more than reversed the prior drop after Powell spoke on Wednesday. Given even the 5-year yield jump, this latest move could be a sign of traders get out of fixed income positions more generally. Breaking down the move in the 10-year, the 9 bp rise was almost entirely due to a rise in the real yield, with the breakeven inflation rate increasing by 1 bp.

Macro

There was some good economic data to justify higher yields - the Philly Fed manufacturing survey rose to a record of 51.8 in March.

Conversely, US initial jobless claims were weak, rising to 770,000 last week, while continuing claims increased to 4.1mn the week before.

At its latest policy meeting, Turkey's central bank hiked interest rates by 2%, which was 1% larger than markets expected. The central bank has been concerned about the potential for capital outflows to destabilise the currency, much like the Brazilian central bank which hiked on Wednesday.

The inflation-adjusted policy rate there is now still only about 1%. They range from a low of -3.2% in Norway to a high of 4.1% in China

Eurozone export growth fell to -5.4% YoY in January, while import growth fell to -9.1% YoY.

Markets

Rising bond yields upset stock markets, with the US gauges all dropping back. The rise in rates hit tech stocks hard, while financials benefited.

The sharp drop in energy was related to the sudden drop in oil prices - WTI fell sharply to $60.0. Over the past week, it is down by 9.1%. It wasn’t clear if anything other than a sudden shift in sentiment following a very strong run was behind the correction.

Despite rising real rates, it was generally a strong day for the precious metals yesterday. Gold only edged up, but the others did better and palladium is now up by over 12% this week.

It was a weak day for the most cyclical advanced economy currencies yesterday, though the Canadian dollar did not drop by that much considering the decline in oil prices.

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