US Treasury yields remained unchanged despite a volatile day of trading, with investors waiting for the impact of upcoming reciprocal tariffs and weak macro data in the coming weeks. The Federal Reserve’s rate-cut anticipation is evident, but not reflected in the discount of recession risks.
A 1-month SOFR floor of 3.5% and a 40-50bp swap spread indicate a minimal path for the US 10-year yield to drop below 4%. This would make the yield look rich if no change in the expected rate is anticipated. However, some investors still see potential for the 10-year yield to reach 5%.
Meanwhile, European rates ended slightly lower, with little reason to rise due to concerns over looming tariffs between the US and EU. The ECB’s Lagarde highlighted the impact of US tariffs on Eurozone GDP growth, leading to a growing expectation of an April ECB rate cut.
In Germany, a fiscal spending splurge is expected, but its implementation timeline is uncertain. Market valuations of 10-year Bunds versus swaps have gradually reclaimed ground, now yielding around 11bp over swaps.
This week’s market view highlights the upcoming events and data points, including preliminary eurozone consumer confidence reading and speeches from ECB Escriva and Fed officials Goolsbee and Williams.
Source: https://think.ing.com/articles/rates-spark-lower-yield-test-but-there-are-limits