E The Daily Shot And Data – September 13, 2016

Greetings,

Once again let’s begin with the global bond market sell-off.

1. While Treasuries have stabilized, the 10yr Bund yield moved higher and remains in positive territory. Some analysts have suggested that, unlike the two sharp bond sell-offs in 2015, this one is likely to have a longer-lasting impact. Perhaps.

2. Swiss government bonds sold off for the 3d day in a row.

3. UK investment grade bonds are now down 4 days in a row. The selloff here is unlikely to persist because the BoE is about to start buying corporate bonds.

4. The 10yr JGB yield hit zero.

5. New Zealand’s rapid government bond rally ended with a sharp reversal.

1. Turning to the United States, Deutsche Bank points out that despite the longer-dated Treasuries’ selloff, the “Fed’s estimate of the term premium is still close to historical lows”. Some explain the negative term premium by the fact that longer-term Treasuries have been used as a hedge for equity portfolios. Therefore buyers of these bonds effectively pay an option premium. But now that the correlation between stocks and bonds moved into positive territory (more on this below) can the negative term premium be justified?

Source: ?Deutsche Bank, @joshdigga

2. Fed’s Dennis Lockhart is ready to hike rates.

Source: Atlanta Fed

3. The Fed’s Lael Brainard stole the show on Monday. Some analysts thought that if she changed her tone from the traditionally dovish stance, it would telegraph a hike this month. Brainard remained against raising rates in her remarks, driving the probability of a September rate hike lower. However, can Brainard’s perpetually dovish tone ever provide a hint of a hike if one was coming?