Treasuries reaction to the global headwinds has been one that is reminiscent of other bouts of turbulence, as emerging markets outflows are channeled to haven assets such as the 10-year and 30-year treasuries.

1. TREASURIES SIGNAL RISK-OFF PACE ACCELERATING
Treasuries remain one of the stronger barometers for risk sentiment in the “new neutral” as investor
appetite for safety trumps the hunt for yield. Futures have been rising as comments from Federal
Reserve Vice Chairman Stanley Fischer propelled the 30-Year Treasury Bond under 3%. He noted that
rates are unlikely to rise as the global economy is carefully being monitored after the IMF and other
Central Banks pared down growth estimates. This had led traders to forecast that the anticipated rising
rate environment will be pushed back as the Federal Reserve attempts to evaluate the dangers posed by
a slump in global economic conditions.
Traders have similarly pared back expectations for the Bank of England as dipping commodity prices and
slower inflation may negate gains made in employment and housing. Mark Carney is also likely nervous
about the deflationary pressures facing one of the U.K.’s biggest trading partners: Europe. Stanley
Fischer’s comments were the starkest yet from a Central Bank official outside remarks from PBOC Chief
Economist Jun Ma. Fischer explained, “if foreign growth is weaker than anticipated, the consequences
for the U.S. economy could lead the Fed to remove accommodation more slowly.” He also hinted that
even with the drop in yields, the Federal Reserve sees interest rates heading in just one direction: up.
Treasuries reaction to the global headwinds has been one that is reminiscent of other bouts of
turbulence, as emerging markets outflows are channeled to haven assets such as the 10-year and 30-
year treasuries. The yield curve has flattened dramatically in recent weeks with the 10-year now trading
at 2.28% despite weakness at a recent auction. Traders piling into treasuries is significant and could be
the canary in the coalmine moment as investors reduce exposure to equities and commodities while
adding to hedges and safety-assets. The recent appreciation in precious metals and the Swiss Franc is
further evidence of shift in sentiment as more volatile movements reduce optimism.
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