US Yields reaching 16-year highs have been the primary focus in the market this week as investors eagerly await the Federal Reserve’s Jackson Hole Symposium. Today, yields have shown signs of stabilizing as Nvidia prepares to release its financial results and forecasts after markets close. Traders are bracing for potential volatility, with options indicating an estimated 11% swing for Nvidia shares by the end of the week.
This surge in US yields has been driven by various factors, including expectations of higher Fed rates in light of a resilient economy, increased Treasury issuance, a sovereign credit rating downgrade, and Chinese dollar selling to support the yuan. The recent actions of the People’s Bank of China have further contributed to the bond sell-off, as it has set the official mid-point for the yuan above expectations for three consecutive days.
The rise in Japanese bond yields has also had an impact on global rates, after the Bank of Japan doubled the policy cap on 10-year JGB (Japanese Government Bond) yields at the end of July. While the JGB market is still seeking an equilibrium point for benchmark yields, rates reached a 9 1/2-year peak of 0.675% today.
Despite these market fluctuations, the US economy remains strong. Richmond Fed President Thomas Barkin has suggested that an “acceleration scenario” is possible. This confidence in the US economy has eased concerns that Fed Chair Jerome Powell may revise his hawkish stance during his speech at the Jackson Hole Symposium, which could potentially mitigate the bond sell-off.
In addition to these factors, a 20-year Treasury auction will take place today, providing insight into the demand for yields at their current elevated levels. Furthermore, flash August PMIs for manufacturing and services will be released for the US, Britain, Germany, France, and the Eurozone as a whole. These data points will contribute to market sentiment and shape investor expectations moving forward.
Sources:
– Kevin Buckland, Reuters
– Thomson Reuters Trust Principles
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