US markets were closed on July 4. Asian and European equities moved lower as did most bond yields. The MSCI Asia Pacific Index fell a third of one percent. It was the third consecutive losing session and five in the past six. European markets were mostly lower, and the Dow Jones Stoxx 600 fell 0.3%, after rising 1% on Monday. It too has fallen in five of the past six sessions. 

The German 10-year Bund yields remain near the 50 bp ceiling that has capped yields in late January, mid-March, and mid-May. Above there, and yields can rise to 65-70 bp. A year ago (July 6), the yield bottomed a little beyond minus 20 bp.The 10-year Japanese government bond yield traded heavily as the BOJ’s 10 bp tolerance band (around zero) turned the market cautious. Japan’s 10-year bond auction was well received. The nearly eight basis point yield was twice the yield of the last two 10-year bond sales. The bid-cover was over four, while in the previous two auctions generated an average of 3.7x.  

The US dollar itself was mixed, but against the euro, yen, and sterling, it mostly consolidated Monday’s advance. The biggest mover was the Canadian dollar. It gained a little more than 0.5% against the US dollar. In the futures market, it is clear that the speculators were caught with a record gross short Canadian dollar position and are dramatically covering shorts. However, new longs appear distinctly unenthusiastic. Despite narrative that suggests a concerted effort by central banks to take away the proverbial punch bowl, we only see the Bank of Canada with a reasonably good chance of hiking rates (July 12).  

The weakest performing major currencies were the Australian dollar (~-0.75%) and the Swedish krona (~-0.45%). Not coincidentally perhaps, the respective central banks met. Sweden’s Riksbank, as expected left policy on hold, but cautioned that there was less of a chance of lower rates than previously. Nevertheless, the krona was sold off. The pressure appeared to emanate from the cross against the euro, which had begun recovering Monday against the krona and accelerated Tuesday.