The Daily Update - It's a Bond Frenzy

It was an impressive performance from US dollar bonds yesterday as $24bln in 10 year UST supply was easily swallowed up by a bond hungry market. The tame US CPI print certainly didn’t hurt but there does seem to be a new wave of buyers emerging who have given up waiting for a move back to the top of the current trading range of 2.6% to 2.82% in 10 year yields. Indeed duration buyers were seen in the long dates as some frustrated investors are thought to have bitten the bullet and need to get some maturity risk on board ahead of next week’s FOMC meeting.

The buying was not only seen in the US, Middle Eastern dollar denominated debt has been bought aggressively ever since the $12bln of supply from Qatar managed to find a home just last week. The new Qatari ten-year issue, a $4bln tranche of the supply, is trading about a point up in price terms since the launch, performance similar to other regional sovereign issues. This move up in prices from long-dated buying is widespread with Pemex, the Mexican state owned oil company, long-dated issues up about 4 points since month end - helping reverse a fall of 5 points from their peak in February after some political inspired weakness and President AMLO, at least for now, falling below expectations on relief measures.

It does appear that bond investors are more fearful of a slowdown in economic activity combined with moderate inflationary levels than the comments from central bankers intimate. Could it be that the market looks towards the Fed meeting next week for further dovish comments from the committee to coincide with the markets economic outlook?

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