The US bond market remains under pressure and overnight

Market movers today

There are no significant economic data releases on the calendar, so financial markets will continue to focus on the rise in global yields and its implications for risk assets, including emerging markets.
In Turkey , central bank rate decision is announced today. While the recent TRY weakness has brought more intrigue into the decision, last week's TRY's rally on Erdogan's early election plan is bringing some relief, keeping the central bank away from a hike, we believe. We expect the benchmark repo rate to stay at 8.00%, although the late-liquidity window rate may be raised, which is the most relevant monetary policy rate at the moment.
In Sweden , residential developer Bonava presents its Q1 earnings report which might attract some attention as construction activity is important from a growth perspective.

Selected market news

The US bond market remains under pressure and overnight, the yield on 10 year US treasuries finally broke above the pivotal 3.0% mark and reached a new four year high. The break above 3% was only very temporary though, yields edged lower again and stand at 2.9977 this morning.

US equity markets were weighed down by rising yields and as the Richmond manufacturing index was much weaker than expected in April, falling 18 points to -3. All three regional PMIs released so far this month (Empire, Richmond and Philly) have declined on an ISM-weighted basis, suggesting a softening in manufacturing activity in April or at least that ISM has peaked. Our base case is still that the ISM manufacturing will fall over the next six months.

The S&P500 index closed 1.34% lower yesterday and Chinese and Japanese markets also trade lower this morning amid concerns about rising US yields. In February, rising bond yields was one of the reasons behind the equities correction that followed, and while volatility in the US interest rate market remains relatively low and equity price fluctuations are still well off the highs seen in February and March this year, yesterday's sell-off in US equities indicate that rising bond yields once again could derail investor optimism. Hence, while the break of the 3% level in the 10 year US yield likely has created room for higher yields near term, we continue to hold the view that it is too early to call for a major fixed income sell-off - especially in Europe - given the business cycle outlook and still dovish central banks.

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