Yields drop on low inflation…and France
June 14, 2024
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–PPI supported the slowing inflation narrative with month/month readings of -0.2% and 0.0 Core. Yields continued to drop, with tens down 5.5 bps to 4.236%. Solid 30y auction; the 30 year yield ended at 4.40%. That yield level, 4.40%, is the halfway retracement from the low yield posted in late December, 3.954% to the high in late April of 4.81%. It took 4 months to go from the low yield to high, and about 1.5 months to retrace halfway back.
–New lows (for second day in a row) in near one-year SOFR calendar spreads:
M4/M5 -112 (9465.5/9577.5) and U4/U5 -111.5 (9486.5/9598).
In M4/M5 the low settle this year was -132.5 at the start of February.
In U4/U5 the lowest settle was -109.5 in early March. It ran all the way up to -65 at the end of April as reds sold off, but today’s settle is a NEW LOW for that particular spread.
Also new recent low in ten year breakeven (10y yield vs 10y TIP yield) at 221 bps. Edging a bit nearer to the Fed’s target.
–Snap election gambit by Macron is creating uncertainty. EUR now 1.0680 and looks like it can test April’s lows of 106. The spread between bunds and oats is widening, as shown on chart below (from end of day yesterday). In May the spread was 47 to 49 bps and now 70 (or 80 this morning). US rate vol firmed (rebounded slightly) yesterday as yields fell.
–BOJ said it would trim bond buying but left details for next meeting. Yen weakened but recovered.
Friday’s news includes U of Mich Consumer Sentiment and Inflation Expectations
