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- Treasury sell-off fuels demand for downside protection
- September BOJ rate hike fully priced in; JGB term premium on the rise
- ECB sees limited spillovers from rising US tech issuance in euro credit markets
- China’s bond sales expected to accelerate
- Emerging market local bonds outpace developed peers amid weaker dollar
Markets Cautious as US-Iran Skirmishes Intensify Overnight
Global bond yields climbed higher overnight, though they retraced this morning, as US-Iran kinetic attacks over control of the Strait of Hormuz intensified. Brent oil prices were steady, declining ~1% this morning amid no clear catalyst, while front-month contracts remained around $94/bbl. Sovereign yields rose overnight in sympathy, but US Treasuries outperformed G4 peers, falling 3 bps this morning versus increases of up to 5 bps in German, French, and UK yields, led by the front end, before partially retracing at the start of the US session as oil eased. In the euro area, traders priced two full ECB rate hikes by year-end. European gas prices remain in focus, with Dutch TTF futures briefly reaching €75/MWh. In Japan, JGB yields rose by up to 7 bps in the 3yr, while OIS markets have fully priced in a September hike after hawkish comments from BOJ policymakers at the G20. This helped ease pressure on the yen, which appreciated 0.2% against the dollar after breaching 160 USDJPY this week. Although the broad dollar is still 1.7% below its July peak, it has risen 1% since its August nadir as the Middle East conflict has re-intensified. In risk markets, US futures point to a higher open, while global bourses were broadly set for a third consecutive day of losses. On the monetary policy front, the RBNZ raised policy rates by 25 bps, its second consecutive hike, while the Bank of Canada’s decision is expected later today.
