Sometimes financial markets are surprisingly bad at connecting the dots--until they can't ignore the picture forming before their eyes. The screeching U-turn in bond markets is a good example. The world's central banks are sending out a message that loose monetary policy can't last forever.
* Bond markets selloff continues on stimulus unwind bets. * Sterling rallies as BoE adds to ECB's hawkish bent. * Bank stocks lead Wall Street higher. By Rodrigo Campos.
US TSYS: Tsys drift a shade off the midday mixed range amid some additional 7Y
auction shorts/sales into the 1pm ET US$28B 7Y auction. Tsys also had seen more 2/10Y, 2/30Y, 5/30Y steepeners done Wed. The 2Y FRN reopening had fairly good
demand. - And earlier action saw better buying in Tsy intermediates, and better selling
into long end. Tsys generally tracker EGBs off the lows amid buying on ECB/Draghi re-think of Tues ostensible ECB taper hints.
* Euro zone yields pull back from highs. * Markets hanging on central bank talk. * BOE's Carney says to debate rate hike in coming months. By Dhara Ranasinghe, John Geddie and Abhinav Ramnarayan.
US TSYS: /FRNS: Traders expected okay demand at the 11:30am ET $13B 2Y FRN
reopening, and expected a discount margin of about 8.0 bps. This auction should draw demand from money market funds and other safe-haven seeking accounts
(foreign central banks, etc.) - HISTORY: The May $13B 2Y FRN reopening drew 5-bps discount margin, a 2.99 bid
cover, and 40.8% indirects, 0.77% directs and a 58.44% dealers.
US TSYS: Treasuries improve off midrange levels, 10Y yield is now at 2.221%.
Tsys saw better buying in intermediates and better selling into the long end. Some said Tsys tracked German Bunds upward; Bunds seems to stabilize and start
creeping upward since about 10:48am ET.
U.S. bond market liquidity may have turned more fragile since the 2007-2009 global credit crisis due to a shrinkage of dealers' balance sheets, the growth of electronic trading and other structural changes in the bond market, according to a New York Federal Reserve blog published on Wednesday.
EGB SUMMARY: It was another very high volume session in EGBs. The key
development were hints via new agencies that Draghi's speech from Monday was
misinterpreted by the markets. Before these interviews were printed, Bunds and Treasuries had been feeling quite heavy.
- The Bund contract jumped 163.24 to 164.04 in seconds but this only took back a small portion of the sell-off from yesterday but it didn't last. An early
release to Mark Carney's presentation at the ECB conference were interpreted
(very) hawkishly and slapped Gilts lower and kicked sterling higher. EGBs followed Gilts down to the point that all the Draghi reassessment rally
evaporated. - The European curve steepened over the course of the session, with the 2Y
Schatz ending 2.8bp lower and the 10Y Bund 1bp higher. - In the periphery, Spanish and Portuguese debt was extremely strong. Monday's
E8bln 10-Year Spanish deal has lessened the threat of large Iberian supply and so the Bund-Bonos spread collapsed 6bp to a 7 month low of 106bp.
By Myra P. Saefong and William Watts, MarketWatch. Rising real rates cap upside for precious metal. Gold prices edged higher Wednesday, finding modest support as the dollar weakened, though rising Treasury yields served to cap the metal's upside.
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