On Wednesday, following the release of the Fed Minutes, I noted that commentators were jumping the gun with the hawkish headlines.
I wasn’t claiming to be clairvoyant. Rather, I was simply looking at the way the dollar and yields were behaving and comparing market moves to what I was seeing on the wires. It seemed to me as though everyone had already written their headlines and copy ahead of the Minutes, and instead of changing what they had written to fit what the market was trying to convey, reporters simply doubled down on the hawkish spin.
Well, if you were following along in real-time, you might remember the following chart from my first post-Minutes commentary:
That visual was accompanied by this color:
Well, it’s been something of a roller coaster day for rates and USDJPY (even if the range has been tight).
At 10:38 EST, we got the latest news out of France which suggests that an alliance between centrist FranÃ§ois Bayrou and Emmanuel Macron may serve to lessen Marine Le Pen’s chances of ascending to the French Presidency.
That promptly led to selling in safe havens as German yields popped along with 10Y Treasury yields, then at 1:00 we got a lackluster, tailing 5Y auction that sent rates and USDJPY a bit higher still, and now it looks like the headline-scanning algos are feeling a bit dovish about the Fed minutes.
I thought that was a particularly important assessment, because it highlighted the extent to which French election risk (or, in this case, French election relief) was dictating the action in Treasurys just as much as the Fed.
Well sure enough, Bloomberg is out Sunday with a piece that says pretty much the exact same thing as I said here on Wednesday. To wit:
While speeches by President Donald Trump and Federal Reserve Chair Janet Yellen loom large for Treasuries traders this week, unforeseen developments in Europe may wind up fueling the most volatility.
On Feb. 22, the same day as the much-anticipated release of minutes of the Fed’s last meeting, it was a French politician named Francois Bayrou who generated the most rapid swing in the $13.9 trillion Treasuries market.
The centrist mayor from southern France triggered a roughly 3-basis-point increase in 10-year yields in just three minutes when he said he won’t run in this year’s presidential election. He offered to support fellow moderate Emmanuel Macron, a pact seen as potentially damaging the chances of anti-euro National Front candidate Marine Le Pen and curbing demand for haven investments.
“The French headlines are what seem to be driving us,” Michael Franzese, New York-based head of fixed-income trading at MCAP LLC, a broker-dealer, said Thursday. “I was assuming that the Fed would have more of an impact on our market than what’s going on internationally.”
Treasuries’ intraday yield surge mid-week was noteworthy, particularly when contrasted with the slower-developing move after the release several hours later of the minutes of the Fed’s last meeting. Perhaps it’s emblematic of the times: Central-bank watching is passÃ©, while handicapping political risk is en vogue.
Yes, “handicapping political risk is en vogue” when it comes to analyzing markets.
If only someone with a hat and dark glasses would have told us as much a year ago…