Wednesday, June 13, 2007

US Treasury

Worries over rising global interest rates amidst escalating inflation and robust global economic growth pushed US Treasury yields to new highs on Tuesday. The 10T reached 5.30%, a level not seen since May 2002. Overnight, China’s consumer prices rose a higher-than-expected 3.4% year-on-year in May. That rattled Treasuries as the data reinforced fears about rising global inflation and the need for higher interest rates to keep inflation in check. In addition, lukewarm reception from indirect bidders for the $8 billion 10-year note auction also spooked the market. Indirect bidders only bought 10.9% of the issue, down from 44.3% during the prior auction. EUR/USD was in a downtrend the entire day, reaching an 11-week low towards late NY trading. EUR/USD fetched $1.3303, down from $1.3359 Monday. The jump in US bond yields lure traders away from the euro and towards the greenback. Elsewhere, the yen rose marginally against the greenback as investors cut back on their yen carry trades in lieu of the drop in risk appetites recently. The yen was last reported done at 121.69 yen compared to 121.73 yen Monday.

Asian Dollar Credits

Asian dollar bonds slumped on Tuesday amidst a renewed climb in US Treasury yields. Nonetheless, prior to the sell-off in the afternoon, sentiment was quite robust in the morning session. As bond yields rose towards London open, sellers surfaced in droves widening credit spreads up to 5bps in the High Grade segment.
The High Yield segment bore the brunt of the selling on Wednesday morning. The Phils were quoted more than $1 lower on the longer-end whereas the Indons were also quoted close to $2 lower along the 2037 maturities.

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