If there was going to be a turnaround today, here’s how I imagined it would go:
- Stocks would get wiped out
- Bond yields would jump
- A big would slowly appear for bonds because 4% 10s and 4.5% 2s are attractive
- The bid in bonds would turn stocks
But that’s not how it happened. The bid in stocks came first and and that reversed the US dollar gain. Bond yields held up.
Or at least they did until now. US 10-year yields peaked at 4.08% and are now down to 3.90%. Thirty-year yields are down 0.3 bps on the day to 3.88% on the day despite a poor auction.
Falling yields are now endorsing the equity prices move and giving it another leg, along with USD selling. The S&P 500 is up 2.4% (and 5% above the lows) while the euro has now risen above 0.9800.
Now some of this is mixed in with what’s happening in the gilt market. That turned around today for reasons that are totally unclear, especially with Truss’ team denying a u-turn on corporate tax cuts.
In any case, the power of this move has me feeling uneasy.