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[MARKET ANALYSIS] US yield curve steepens on the Fed independence challenge, supply ahead

The US yield curve steepening today is largely driven by concerns over the Federal Reserve's independence, particularly following a subpoena for Chair Powell.

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[MARKET ANALYSIS] DXY pressured on Fed independence woes, whilst Antipodeans benefit from strength across the metals complex

[MARKET ANALYSIS] US yield curve steepens on the Fed independence challenge, supply ahead

German Finance Minister Klingbeil says the transatlantic relationship "is disintegrating", Die Zeit reports. Adds, We must further strengthen Europe, and we must do so much faster. The current pace is inadequate. European sovereignty now has top priority"

ECB's Muller says there's no reason to ease further in the near term and that rates have been in the right place for some time

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  • Fixed benchmarks in proximity to the unchanged mark.
  • Overnight, while modest, the bias was downward as the US yield curve steepens over Fed independence concerns and the narrative that a more dovish Fed now could lead to higher inflation and, by extension, higher rates further down the line.
  • While the independence narrative is nothing new, it has been exacerbated by the subpoena of Fed Chair Powell. Short-end yields are also, potentially, hit by the measure to cap credit card interest rates for one year, a narrative that has weighed heavily on US banking names in the pre-mkt and some European peers with exposure.
  • USTs at the low-end of a 112-02 to 112-11 band, posting losses of five ticks at most. Support resides at 111-31 from Friday, below that we look to 111-26 from late-August.
  • By extension, the 10yr yield is at a 4.2% peak, just shy of last Friday's 4.21% high. Thereafter, we return to levels from early-September/late-August when 4.35% printed (18th Aug.).
  • In Europe, action is much the same. Bunds are near-enough unchanged in 127.82 to 128.05 parameters.
  • OATs in focus later in the week, see the 08:45GMT update for details.
  • Gilts opened near-enough unchanged before coming under modest pressure, echoing the above. At the low-end of a 92.30-53 band with downside of 18 ticks at most.
Context

This dovish sentiment is contributing to higher long-term rate expectations, potentially signaling inflation risks ahead and impacting short-end yields, especially with measures to cap credit card interest. Traders should be watchful of how this narrative influences fixed-income sentiment and bank stocks, as well as forthcoming bond supply dynamics.

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