- No deal? It is widely expected that President Trump will signal the U.S.’ withdrawal from the Iran nuclear deal at 2:00 p.m. ET. There could also be new sanctions on Iran to get concessions on various issues (ballistic missile program and Iranian support for terrorism). The President is expected to be light on specifics though, which could open the door to flexibility. Ahead of the announcement, WTI crude oil continues to consolidate above $70/barrel, the highest level since late 2014.
- Will China sell its Treasury holdings? An important plotline relating to foreign demand for U.S. debt is the potential for China to liquidate its Treasury holdings, or at least threaten to, as a bargaining chip in ongoing trade and tariff negotiations with the U.S. In today’s Bond Market Perspectives, we dive into the topic, why we believe that will not happen, and other aspects of this headline-generating dynamic. Tomorrow’s 10-year Treasury auction could give insight into foreign investor demand for Treasuries, especially with yields near 3%. All else equal, we believe foreign demand will likely remain robust and help to restrain U.S. rates, given the largest-ever yield advantage of the 10-year Treasury to the 10-year German bund and other developed markets.
- 10-Year Treasury yield can’t hold 3%. It has been two steps forward, one step back for longer-term Treasury yields. After rising above 3% in late April, the benchmark yield has been unable to retest the 3% level. One factor that could sustain downward pressure on yields is the Treasury futures market, which remains at historic net short levels. The positioning indicates market participants believe yields will move higher. However, this has been an important counter-cyclical indicator, as profits (or losses) on these positions can lead to buying Treasury futures to close them out, ultimately leading to a decline in interest rates over the short term.
- Fed remains on its gradual track. Last week’s Federal Reserve (Fed) meeting did little to change the yield landscape, nor did the April jobs report. The jobs report fell in the “goldilocks” zone, with unemployment ticking down below 4%, but not spurring the level of wage growth that one would expect given such low unemployment. This keeps the Fed on track to hike two or three additional times in 2018, with our base case remaining two and the market pricing in a slightly higher chance of two than three. Today on the LPL Research blog we take a look at the the jobs report and other key economic data points from last week.
- NFIB Small Business Optimism (Apr)
- Germany: Trade Balance (Mar)
- Germany: Imports & Exports (Mar)
- CPI (Apr)
- UK: Trade Balance (Mar)
- UK: GDP estimate (Apr)
- Import & Export Price Indices (Apr)
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.
For Public Use – Tracking # 1-728226 (Exp. 5/19)