Yields keep higher, stocks more subdued on the session 10-year Treasury yields knocking on the door of 1.75%

Treasury yields are continuing to keep higher on the session, with 10-year yields up 3.4 bps to 1.735%. Meanwhile, 30-year yields are up almost 4 bps to 2.126% as the post-FOMC meeting minutes selloff holds.

The chart above remains a key one to watch as 10-year yields are close to testing resistance at 1.75% and its 200-day moving average (blue line) at 1.79%. That is yet another critical region before a potential surge towards the December 2019 highs around 1.97% and the 2.00% mark.

In the equities space, European indices are still largely more subdued. The majors are down by roughly 1% so that is keeping risk sentiment more on the defensive for the time being. Elsewhere, US futures are faring slightly better from earlier but tech remains a notable laggard. Dow futures are up 0.3%, S&P 500 futures flattish, while Nasdaq futures are down 0.3%.

Meanwhile, the dollar is keeping steadier for the most part alongside the yen though earlier gains have been trimmed somewhat. AUD/USD is down to 0.7170 but off earlier lows of 0.7145. USD/CAD is up 0.2% to 1.2772 but off earlier highs of 1.2810.

In the commodities space, gold is still pinned lower just below $1,800 while oil has seen an impressive turnaround to be up over 1% to just below $79 at the moment.

Looking ahead, US weekly jobless claims will be one to watch. Otherwise, expect the focus to stay on the risk mood and bond yields before we get to the NFP release tomorrow.

Dollar builds on hawkish Fed tone from yesterday

The hawkish Fed tone from yesterday is helping to pin down risk assets and the dollar is extending gains against the commodity currencies for the most part today. AUD/USD is down 0.9% to 0.7157 as price looks towards 0.7100 next:AUDUSD D1 06-01

Meanwhile, we’re also seeing EUR/USD fall to a low of 1.1285 on the day and GBP/USD falling further to 1.3505 after failing to breach resistance from the 100-day moving average and 61.8 retracement level:

Despite the dollar’s advance, we are actually seeing equities pare some of its earlier losses. S&P 500 futures and Dow futures are now flat, but it is a bit early to call for dip buyers to prevail.

I still reckon we could see risk trades keep more pressured, especially if bond yields threaten to push higher. For now, 10-year Treasury yields are up 2.2 bps to 1.725% but facing resistance at 1.75% to 1.79% as outlined here.

Either way, it is tough to bet against the dollar so long as the Fed continues to play ball and risk trades are looking vulnerable. If anything else, the move so far this week could have more legs if the US non-farm payrolls release tomorrow vindicates the Fed in going with a quicker balance sheet runoff.

More on the North Korean missile launch – a test-firing of a “hypersonic” missile

  • North Korea said Thursday that it has conducted a test-firing of what it called a “hypersonic” missile
  • North Korean leader Kim Jong-un did not attend the firing.
  • The North conducted the first test-firing of the “hypersonic” missile Hwasong-8 in September last year, though the South Korean military have said it appeared to be at an early stage of development.

See the link to Yonhap above for more

North Korea's Kim Jong Un

Japan press on the Bank of Japan “stealth taper”


  • The Bank of Japan’s government debt holdings have fallen for the first time in 13 years as the central bank quietly adjusts its massive bond-buying program in the face of looming financial risk.
  • The BOJ’s balance of Japanese government bonds totaled 521 trillion yen ($4.49 trillion) at the end of 2021, according to data released Wednesday, down 14 trillion yen from a year earlier.

Down from an eye-watering 535 tln to a marginally less euye-watering 521 tln.

There is plenty more at the piece, link here (may be gated)

Nikkei says the motivation for the reduce tion was ‘tackling risk’

Bank of Japan Governor Kuroda

US major indices close at session lows

The major US indices closed the new near session lows. The declines were across the board today as the overall market reacted to the idea that the Fed would look to run down its balance sheet in addition to increasing the taper, and starting to tighten.

  • The Dow industrial average closed at record levels on the first two trading days of the year. Today the index reached a new all-time high, but started to tumble after the FOMC meeting minutes. The new all-time high for the Dow industrial average is at 36952.65
  • The NASDAQ index has been on a one-way street to the downside over the last two trading days and is down nearly 7% from its all-time high. Having said that, the price is still above its December 20 low at at 14860.04. At the December 20 low the NASDAQ index was down -8.34%
  • The S&P index has started to give up some of its gains today after reaching a new all-time high just yesterday at 4818.62
  • Dow industrial average, -392.54 points or -1.07% at 36407.12
  • S&P index -92.94 points or -1.94% at 4700.59
  • NASDAQ index -522.53 points or -3.34% 15100.18

The move higher in interest rates, is certainly a major catalyst. The 10 year yield reached a high of 1.712%. That took the yield to the highest level since early April 2021. The largest gains were in the short end, however, where the two year yield was up nearly 6 basis points

US yields
US yields

In the forex, the EUR is ending the day as the strongest of the major currencies. The CAD is the weakest. The USD is mixed with declines versus the EUR and GBP and gains vs the CHF, CAD, AUD and NZD. The greenback was near unchanged verse the JPY.

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