Bonds Rally Reverses; Gives Back Bulk of Friday Gains

U.S. Treasuries ultimately headed lower Monday as divergent election results with respect to European Union unity made for volatile trading overnight. There was a resounding “No” from Italy on constitutional reforms, while in Austria, the pro-EU candidate, Alexander Van der Bellen, won convincingly against the far right candidate. Not surprisingly, the Italian 10-year note paced the instability, initially hitting 1.95% before running to a 2.05% high yield/low price as risk aversion was quickly unwound. The 10-year Treasury rate traded 2.338% before flipping back to 2.42%. European shares have rallied on hopes of continued European Central Bank stimulus, and have pulled up U.S. equity futures as well. EUR/USD dropped initially too, but has rebounded, ranging from 1.0506 to 1.0730.

There wasn’t much data on the calendar with EU services purchasing managers’ index (PMI) revised lower while the U.K.’s beat expectations. In the U.S. the slate includes the November Markit PMI at 9:45 a.m. ET, and the Institute for Supply Management’s services ISM PMI and the Federal Reserve’s Labor Market Conditions index at 10 a.m. Fedspeak is due from New York President William Dudley at 8:30 a.m. and Chicago’s Charles Evans on monetary policy and the economy at 9:11 a.m.

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