The yield on 10yr US Treasuries inches closer to the 3 per cent mark down another 8bps this morning… the yield curve continues to flatten in line with the fiscal/monetary policies of the Fed.
Noted Across the Curve yesterday:
The belly of the curve was the superstar of the day, The yield on the 5 year note tumbled 21 basis points to 1.99 percent and the yield on the 10 year note passed through a mini interest rate cycle as its yield plummeted 25 basis points to 3.07 percent.
Making it a sort of weak ogive, rather than a clean curve.
There’s a rash of economic news out today come US open which will likely drive yields lower still:
Weekly jobless claims (forecast -12K to total 530K), October durable goods (expected -3.0%) and October personal income (forecast +0.1%, spending seen -1.2%). Consumer sentiment measures from the University of Michigan are out later in the day as well as data on October new home sales.
Of more import though, in the medium and long term perhaps, are actions taken today by the People’s Bank of China. Reports Reuters:
China’s cut in banks’ benchmark lending and deposit rates by 108 basis points came a day after the World Bank said Chinese growth next year would be around 7.5 percent, the slowest rate since 1990.
The People’s Bank of China (PBOC) also reduced reserve requirements by 1 percentage point for big banks and by 2 percentage points for smaller banks.
‘It’s certainly a lot more aggressive than anything they’ve done recently. I think it speaks volumes about just how much China has slowed down,’ said Anthony Muh of AT Asset Management in Hong Kong.
The most important part being a recognition from China’s chief economic planner that more steps were needed to “boost consumption in the economy”.
A process which – according to a Dresdner note last week – might lead to the important realisation that China cannot sustain huge levels of investment in dollar-denominated fixed income assets. Which in turn would roil the US economy, raising the outlying risk of a dollar devaluation as the remaining viable solution to curb deflation.
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