Another sharp rise in yields

Market movers today

Today Fed chair Jerome Powell is discussing the US economy during a virtual event hosted by the Wall Street Journal. We think Powell will repeat that the Fed is patient and will not tighten monetary policy prematurely. We will listen closely to any comments on last week's rising real rates and fall in inflation expectations.

The ECB enters the silent period today with not comments on monetary policy until next week's meeting.

In the US we will also look out for initial jobless claims.

In the euro area, we get January retail sales and unemployment. Lock down still weighed heavily on Europe at the beginning of the year, and we are likely to see a decline in spending.

OPEC+ meets today to decide whether to start normalising oil production.

The 60 second overview

Brexit: The UK and the EU are arguing over whether the UK has breached the Northern Ireland protocol or not, as the UK unilaterally has decided not to check (in particular food) exports to Northern Ireland from Great Britain for another six months. We did not see a reaction to GBP but keep in mind the free trade agreement has not been ratified by the European Parliament yet (although no one, at least at this point, believes that the European Parliament would dare to reject it), which hence remains a tail risk for GBP. The UK budget yesterday did not reveal much new information that had not already been leaked.

US yields still on the rise: US 10yr Treasury yields rose 7.5bp yesterday reaching 1.47%. Where inflation expectations by the end of last week took a hit due to higher real rates, we saw real rates as well as inflation expectations moving higher yesterday. That is more acceptable from a Fed perspective. We will still listen closely for any possible verbal intervention from the Fed if they start to think (in particular real) rates have moved too high. If needed, the Fed (or the ECB for that matter) can always start buying more long-term bonds if they are concerned about real rates rising too quickly and too much.

EU is set to extend budget rules suspension: The EU is expected to extend the suspension of the budget rules into next year. The EU Commission says that it would be a mistake pulling back support too quickly and the best thing to do is to support the recovery.

Equities: Equities ended mostly lower yesterday where development in bond yields continued to dominate risk appetite and sector performance. Cyclicals outperformed defensives, large caps beat small caps and value outperformed growth. US mostly underperformed Europe as well, with S&P -1.3%, Nasdaq -2.7%, Dow -0.4% and Russell 2000 -1.1%. Sector wise, Energy, Financials and Industrials were the only sectors in green. In the other end, Tech and Consumer Discretionary lost 2.4% each. Growth is also selling off in Asia this morning, taking most markets 2-3% lower. US futures are pointing to another day of losses.

FI: And back to last week's trends. US Treasuries lead the sell-off dragging euro rates higher as well. The sell-off was broad based across the belly to long-end by 8-9bp while short end rates rose only slightly by 2bp. European rates rose 6-7bp in the 10y point across most jurisdictions, with steeper curves and a small spread widening to the periphery.

FX: The USD rose yesterday vis-à-vis Scandies. EUR/USD was stable just below 1.21 and oil prices recovered some lost ground before the OPEC+ meeting today.

Credit: Only very small moves in credit yesterday where iTraxx Xover widened to 250bp (+2bp) and Main to 48½bp (+½bp). While HY was marginally tighter on the day, IG was marginally wider.