Battered Treasury bonds caught a bid over the past 24 hours on surprisingly soft U.S. jobs data and the biggest recoil in oil prices this year - but risk premia are mounting on a worrying cocktail of fiscal and monetary policy uncertainty. Any signs of a crack in the jobs market may be enough to stay the Federal Reserve's hand in raising policy rates one last time this year - as many Fed officials still suggest it might. Fed futures to the end of next year all fell back on Thursday and now see less than a 50% chance of another hike in the cycle.
FILE PHOTO: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustrationBattered Treasury bonds caught a bid over the past 24 hours on surprisingly soft U.S. jobs data and the biggest recoil in oil prices this year - but risk premia are mounting on a worrying cocktail of fiscal and monetary policy uncertainty.
Although both oil and bond yields calmed somewhat overnight, U.S. crude plunged by more than $5 per barrel on Wednesday. At $83 this morning, it's at its lowest since August following signs of building U.S. inventories, a lack of new supply cuts at the OPEC+ meeting on Wednesday and the soft U.S. jobs news.
There was some follow through on Asia's bourses. But in a sign of the nervousness, European stock markets stalled again and Wall St futures were back in the red. The dollar found its feet after it was knocked back yesterday too.The problem for bond markets is that the short-term economic and interest rate picture is just one part of the problem - and longer-term unknowables about the parlous state of U.S.
Reflecting some of that, the New York Fed's estimate of the so-called term premium on 10-year debt - the added compensation investors seek for holding long-term bonds to maturity over short-term notes - has turned positive for the first time in two years this month and hit its highest since 2015 on Wednesday.
Metro Bank has had long-standing issues with regulators over its internal risk models - but its scramble to raise capital will remind many of the U.S. regional bank woes in March and others of the rumbling in mortgage markets 15 years ago.* U.S. weekly jobless claims, U.S. Aug international trade
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