Sharp Movements in Yields Currencies as CBs Fight Back

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Rates as of 0500 GMT

Market Recap

Boy what a day! Ive rarely seen such huge moves in currency rates in a day recently.

Its hard to say whether it was riskon or riskoff or what. The dollar, the safest safehaven, soared while the commodity currencies got hammered.

In a way it was the opposite of what one might expect the currencies of countries with higher yields fell, while those that werent rising so much benefited.

USD led the way into the US afternoon, but then the market turned around sharply. US long bond yields plunged, with the 30year bond rallying the most since November. That set the stage for a reversal in the blowout in many bond markets.

Central bankers have started to push back on the idea of higher rates. We saw that in Australia, where the Reserve Bank of Australia bought bonds on Friday and again today, and in Europe, where European Central Bank ECB Chief Economist Lane and the real ECB President, if some analysts are to be believed cautioned that it can be problematic if market optimism moves ahead of the current state of the economy, while Executive Board member Schnabel suggested that a premature climb in real rates might necessitate additional policy support.

This morning rates are fairly steady and currencies rather stable from Fridays levels.

It looks to me like the moves in bond markets were much too fast, but perhaps not too far. That is to say, they were quite sudden, but the levels of yields, particularly at the long end, are not too high…

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