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- US rate option markets price increasing risks of renewed tightening
- MBS convexity may be amplifying pressure on long-end US Treasury yields
- UK gilt yields experience their largest weekly drop since 2024
- Japanese inflation softens more than expected, supporting JGBs
- EM bond issuance rebounds to $22.6 bn last week as Indonesia and Morocco anchor activity
- China cracks down on illegal cross-border security activities
- Political developments weigh on local markets in Türkiye
Markets Close the Week on a Positive Note
The S&P 500 index was heading this morning for its longest streak of weekly wins since 2023 as hopes that the US and Iran are closer to a peace deal and continued optimism for AI pushed equities higher. US equity futures signaled a positive opening this morning, with the S&P 500 index on track for an eight straight week of gains as markets appeared to shrug off concerns that more disruptions of energy supply could stoke inflation. Brent futures rebounded +1.9% but remained lower for the week. US Treasury and euro-area government bond yields ended the week lower, while UK gilt yields experienced their largest weekly drop since 2024 on Labour leadership frontrunner Burnham’s pledge to stick to fiscal rules. The rally has pushed 10-year UK gilt yields -25 bps lower this week to 4.92%. This upbeat tone, however, is not shared by everyone in financial markets. US rate option markets are pricing increasing risks of renewed tightening, with SOFR options implying around a 30% probability of 100 bps hikes by end-2027. Elsewhere, Korea’s finance ministry and the Bank of Korea said in a joint text message that authorities would “take decisive actions if necessary” to stabilize the currency. The Korean won depreciated again this week, underperforming most Asian currencies.
