Global Macro Commentary: June 24: Treasury Rally Extends

Research evidence excerpt

Global Macro Commentary: June 24: Treasury Rally Extends

UpdateMJGB sold off by 0.5bp to 1.42%, 10y JGB rallied by 1.0bp to 2.665%, while 30y

JGB sold off by 2.5bp to 3.865% on a simple yield basis. TONA-OIS curve

twist steepened but underperformed JGBs in 10y sector. We expect the 20y

auction to be digested without major disruption, supported by month-end

rebalancing flows and attractive outright yield levels. However, fiscal

concerns and relatively weaker dip-buying demand compared to the 30y and

40y sectors may act as a headwind.

• Eurozone rates, in line with falling oil prices, duration experienced a

strong rally, closing ~5.5bps lower at London close despite hawkish

remarks by ECB’s Executive board member Schnabel. The move was led by

the long-end and accelerated further into the afternoon session on spillover

from the US market. Consistent moves took also place in the swaps space

where 2s10s flattened by ~2bp. Movements in the Gilt markets were even

more pronounced alongside dovish remarks by BoE’s Taylor and news

around the forthcoming UK government coming in. Long-end gilts

outperformed all other EGBs in a bull flattening move with the 2s30s spread

narrowing by ~3.6bp. Short- and medium-term cash curves flattened by ~3bp

and swap curves flattened, predominantly in the short end with 2s10s

closing ~3bp flatter.

Emerging Markets

• Most AxJ FX weakened while rates were mixed as market focus remained

on equities through the Asia session. KRW depreciated 0.9% to 1,547 per

USD as KOSPI recovered by 3.3% while foreign equity outflows increased for

a third session to $3.0bn (P: $2.6bn). 1y KRW NDIRS yield fell 3bp even as

BoK said higher interest rates will be needed at an appropriate time, while

10y KTB yield rose 1bp despite Presidential Policy Chief Kim saying