Fixed Income Update
U.S. fixed income markets were reasonably well-bid for most of the morning but turned flat after comments from the ECB’s Yves Mersch. The ECB’s governing council member seemed to indicate an ECB policy shift away from inflationary vigilance toward growth fears. U.S. bonds retraced their morning gains as the USD gained momentum, while European traders piled into fixed income markets. The 10yr German bund reversed its earlier course and shot up 0.37%, sending its yield to 3.97%. Forthcoming speeches from ECB members should shed light on whether the central bank has shifted its overall policy stance towards growth, or whether Mersch was trying to jawbone the EUR lower.
The short end of the curve is flat with the 4wk bill yielding 3.12%, higher than that of the 3- & 6-month bills, as well as the 2yr note. FED Fund futures are marginally higher and now show a 44% chance of a 75bp cut at the end of the month. The 30yr yield is flat at 4.29% and the 10yr yield is 3.69%.