Reactions in the market were curious, with implied Fed policy rates in the futures market and two-year Treasury yields easing back even as 10-year yields chomped at the 5% bit.
Some speculated that if the Fed was hesitant in pulling the rate trigger again now and the economy continues to race on, it may simply mean it has to keep things tight for much longer than markets had been betting over long-term maturities.
The resulting further disinversion of the yield curve to show the gap between two and 10-year yields at its lowest in a year is some testament to that. At the same time, worries about fiscal policy and debt supply have seen the risk premium on long-term maturities, the so-called term premium, rising.
But with another nervous weekend around the Israel-Gaza war ahead, when markets are closed or illiquid, Friday trading has shifted the focus back to short-term safety hedges.
That’s helped pull 10-year Treasuries back about 8bps from 5%, returned a bid to U.S. crude oil back at two week highs and saw gold hit its highest since July.
Wall St futures remained in the red after the heavy losses on Thursday and the VIX volatility gauge hit its highest level since March at 21.66.
The dollar stayed buoyed and touched the 150 yen level seen at risk of drawing Bank of Japan intervention.
Chinese, Asian and European stocks all fell heavily.
In Europe, L’Oreal shares dropped 3% after it missed expectations for a strong rebound in China.
