US: Bond sell off catches markets off-guard - ING

Talk of broken Phillips curve and lowflation has been temporarily been displaced by a new momentum amongst the reflationistas, but the sell-off in the bond market has largely been driven by policy perceptions and technicals (Bunds breaking out of their 0.15-0.50% range) rather than data per se, explains the research team at ING.

Key Quotes

“The big question today is whether US data will pour more fuel on the bonfire in the bond market? In particular will today’s US wages rise significantly enough to support views in the central bank world that capacity constraints in the labour market will eventually trigger higher inflation? Our team is on consensus expecting wages to rise 2.6% YoY, a modest pick- up versus the softening we’ve seen over the last three months and arguably slightly positive for US Treasury yields. That could give the dollar a modest lift against the JPY – where the BoJ today re-iterated its unchanged policy with an offer to buy unlimited amounts of 5-10 year JGBs at 0.11%. 115 looks in reach for $/JPY here. Higher Treasury yields may spell a little more pain for the EM high yielders, but we would prefer to be looking for buying opportunities in the likes of TRY, MXN and RUB.”