US | Treasury yields display elevated sensitivity to geopolitical risks

Summary

The muted market impact following Powell’s stark message against setting interest rates “following the preferences of the President” likely reflects low confidence in the lawsuit’s prospects.

Key points

• Key points:
• The announcement of a US-NATO “framework” deal around Greenland eased pressure on Treasury yields; they continue to trade amid unusually low volatility.
• Growing expectations that the Fed will keep rates unchanged while Powell remains as Chair are likely to prevent a further steepening of the yield curve in the coming months.
• The 10-year term premium continues to hover around 80 bps, while the dollar shows no clear signs of recovering from last year’s accumulated depreciation.
• US growth resilience and chances that Powell remains on the FOMC are likely bolstering market perceptions that there is limited downside for the policy rate this year.
• Mortgage rates declined following the directive for housing GSEs to buy $200bn in MBS and narrow credit spreads reflect a still healthy debt market.

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