Global core bonds lost ground yesterday with US Treasuries underperforming German Bunds. The risk-off rally of late eased as US President Trump was said to delay his decision to impose auto tariffs by 6 months, avoiding trade disputes with important partners (the EU, Japan). European equity markets edged higher, weighing on core bonds. Solid US eco data lifted sentiment further. Weekly jobless claims fell from 228k to 212k, close to multi-decade lows, while building permits and housing starts both rose in April. The Philly Fed Business Outlook increased from 8.5 to 16.6 in May, although the details were less outstanding than the headline number suggests. US Treasuries edged lower. The US yield curve bear flattened with yield changes in the range of +1.4 bps (30-yr) to +3.3 bps (2-yr). The German yield curve was only modestly lifted with gains up to +0.9 bps (30-yr). Peripheral spreads over the German 10-yr yield tightened with Greece (-9 bps) and Italy (-7 bps) outperforming.

Sentiment is mixed across Asia. While the threat of US auto tariffs has most likely been put on the back burner for now, the US-Sino trade spat continues. This morning, Chinese state media signalled a lack of interest to continue trade talks with the US under the current threat to escalate tariffs and the absence of "sincerity" on the US side of negotiations. Core bonds resume the upward trend.

The trade story could shift to the background with the EU and Japan most likely excluded from Trump's trade crusade. We wait and see whether investors are willing to continue yesterday's risk rally. China signalling a lack of interest in resuming trade talks is probably shifting investors already back to risk-off, further supporting core bonds. The eco calendar is not expected to offer much guidance for trading today. In the US, the University of Michigan sentiment for May gets released and is expected to stabilize after last month's decline to 97.2. The EMU releases last month's new car registrations and a final reading of April CPI's. EU finance ministers meet in Brussels, while Fed governors Williams and Clarida are wildcards.

Long term view: markets concluded that the ECB missed out on this cycle. They even start pondering the possibility of an additional deposit rate cut. The downtrend in the German 10-yr remains in place so far. Regarding Fed policy, markets are now largely discounting a Fed rate cut by December. The US 10-yr yield earlier this month temporary returned above the lower bound of the previous 2.5%-2.79%. However, the cycle low (2.34% is again on the radar).

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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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