Spain to France: hold my cerveza
TLT•Spain’s Prime Minister Pedro Sanchez called a snap election for November as he trails in polls, adding to political uncertainty alongside France’s fiscal turmoil. The U.S. 10-year Treasury yield reached 5.3493%, while the French-German 10-year bond spread narrowed to 137 basis points.
1. Political uncertainty grows
Sanchez called a snap election for November while trailing in polls. A defeat would leave markets facing political uncertainty in two of the euro zone’s four biggest economies at once.
2. European bonds and rates
The premium on French 10-year bonds over German debt narrowed to 137 basis points on Monday, from 85 basis points a month earlier. The euro recovered above $1.12 after falling to $1.1161 overnight. Some investors are betting bond turmoil could prompt a dovish European Central Bank shift, but inflation is running at 3.8% and the latest energy shock may limit policymakers’ room to pivot. A year-end rate rise is 83% priced.
3. Treasury yields hit high
The U.S. 10-year Treasury yield reached a new 24-year high of 5.3493%. Despite the bond sell-off, Nasdaq closed at a record, Nvidia’s market capitalization approached $7 trillion, Asian shares gained modestly and European stock futures rose 0.4%.
