The Weekly Update

The US Treasury curve flattened last week despite the record $26bn 10-year issuance; yields fell 7.6bps from 2.950% to 2.874% and 30-year yields moved 5.8bps lower from 3.089% to 3.031%. The Turkish lira continued to set record lows against major currencies as the country wrestles with a crisis that is beginning to rattle other markets. The euro is also facing headwinds because of the crisis with growing concerns from the European Central Bank (ECB) about banks in France, Spain and Italy and their exposure to Turkey's troubles.

Gold ended its 5th week in a row down against the dollar with the precious metal posting gains only 4 of the last 17 weeks. This coincides with broader dollar strength over recent weeks, but it was more negative Brexit news that was the root cause of sterling falling 2% from 1.30 to around 1.275 now. Moreover last week’s release of July data showed UK house prices falling for 5 consecutive months, by some measures, the longest losing-streak since the financial crisis. As if this all wasn’t bad enough, for those hoping it might be a safe haven of last resorts… even the Kazakhstan tenge continued to be sold-off last week and into this morning, following in the wake of a declining Russian rouble.

Looking ahead we continue into our second week watching which way a headless-Turkey will run, its plummeting lira, its foundering financial sector and its wider impact on EM, Asian and European  banks and markets. We have the US Treasury selling $96billion of short term paper later today pumping up the already bloated front end of the curve; with the only notable US data being retail sales, jobless claims and the (New York) Fed’s Household Debt and Credit Report.

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