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No Doubt - Yellen Is Gone

04 October 2018 by jbchevrel

Chair Powell sounded hawkish yesterday in DC. He said that rates are still accommodative here, that the neutral rate is still far, that they may eventually go past neutral, even if it starts restraining growth. Eight months later, no doubt, Janet Yellen is gone. The speech came after strong ISM/ADP data yesterday, taking $ / $ rates higher and CDS indices wider. US indices underperformed European ones, while BTP/DBR spreads stabilised across the curve. In the US, CDX HY underperformed IG, HY spread trades near 340bp for the first time since July. VolumesTreasury futures (TY) will be at focus tomorrow again, with the US employment report to come. Specs have built TY shorts in the 119-16/118-16 area, meaning they are +/- all in profit, as we trade south 118. Such a crowded positioning might let us see a profit-taking-led rally from here (320 on 10s)… Tomorrow, the focus will be on average hourly earnings, the Bloomberg consensus expects 2.8%y from 2.9%y.