Global Bonds Rally After Tensions Flare Between U.S., Iran
Comment of the Day

January 03 2020

Commentary by Eoin Treacy

Global Bonds Rally After Tensions Flare Between U.S., Iran

This article by James Hirai and Vivien Lou Chen for Bloomberg may be of interest to subscribers. Here is a section:

“The data will probably prove to be an anomaly, but the initial market reaction is that it’s bad enough to at least consider the possibility of a Fed rate cut,” said Chris Low, chief economist at FHN Financial. “The combination of geopolitical tensions on top of unexpectedly weak data increases the likelihood of a 2020 Fed rate cut.”

Yields on 10-year Treasuries dropped as much as 8 basis points to 1.79% and remain within 2 basis points of that level. Rates on their German counterparts were down 6 basis points at minus 0.28%. Yields tumbled in most major markets around the world.

Eoin Treacy's view

I agree that it is unlikely the Iran news is enough to justify a rate cut but the bond market rallied nonetheless. 10-year Treasury yields are now testing the sequence of higher reaction lows evident since September, having found paused in the region of the trend mean. A sustained move above 2% will be required to signal a return to supply dominance beyond the short term.

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