US Bond Market Update

Tuesday, 19 April 2011 06:53

The US bond market treasury yield curve has steepened with long-term rates rising and short-term rates falling after the S&P announcement which will certainly worry holders of US dollars. 

With almost 50% of treasury securities held OS the USD will be vulnerable to negative developments and all eyes will be on the upcoming negotiations on raising the US debt ceiling and the associated long term fiscal proposals being forwarded by each political party.

Normally concerns about the US credit ratings and the fiscal issues benefit the Euro, yet with the Euroland debt crisis reducing the appeal of the Euro doubt the market will need to look for alternatives. CHF stands out as with a better fiscal backdrop while it also tends to correlate negatively with risk appetite.

Gold too has also been in greater demand due to weakened market confidence in traditional reserve currencies the market could see the CHF and gold outperform.

10 year Treasury notes gained sending yields down 4bps to 3.37%.

Elsewhere on the yield curve 30 yr treasury yields lost 2bps to 4.45%. 2 yr yields slipped 3bps to 0.67%. Bond investors will no doubt favor the short to intermediate sector of the yield curve where they can benefit from the roll down the curve while limiting interest rate risk.