Rise in U.S. Treasury Yields an Opportunity to Extend Duration — Market Talk

0508 GMT - Helaba Invest uses the recent rise in U.S. Treasury yields to gradually extend duration, says Jens Bies, the head of rates and FX research and asset management. With the market now pricing in more than three interest-rate hikes by the Federal Reserve, "we see potential--and, above all, a favorable risk-reward ratio--specifically at the short end of the curve," he says. The long end will only become attractive again once economic growth begins to cool, he says. ([email protected])0504 GMT - Slower model development will undoubtedly slow AI investment, which by some estimates, accounted for around half of U.S. economic growth in 1H of 2025, says Ipek Ozkardeskaya, senior analyst at Swissquote. At a time when the Western world needs AI-led growth to keep its head above water, the impact could be significant, she adds. Trade tensions, wars, disrupted trade routes, spiking energy prices, rising inflationary pressures and rising borrowing costs could only be neutralized by AI, she adds. Hitting the brakes could provide a negative backdrop for cyclical sectors, particularly industrials and consumer discretionary, she says. ([email protected]; @JamesGlynnWSJ)0426 GMT - Faster price increases in India, driven by costs of food and oil and rising core inflation, strengthen the case for a shallow rate-hiking cycle, Nomura analysts Sonal Varma and Aurodeep Nandi say in a note. Consumer prices rose 4.8% on year in August from 4.5% in July, while core inflation accelerated to 4.2% from 3.9%. The bank now expects 50 bps of rate hikes in 4Q, with the Reserve Bank of India raising rates in October and December. Nomura has raised its fiscal 2027 inflation forecast to 5.1% from 4.6%, above the central bank's 5.0% projection.([email protected])0417 GMT - Treasury Secretary Bessent reiterated his support for the crypto Clarity Act ahead of a key Senate vote, calling the legislation "essential to ensuring America wins the global race for new technology." Bessent said on X that the act's final draft furthers the administration's mission of enabling digital technology while supporting community banks. That's been a point of contention, with critics worried that the legislation doesn't do enough to protect community banks from deposit flight caused by interest-like payments on stablecoin balances. Bessent said the draft gives the Treasury additional authority to safeguard community banks. "If stablecoins cause harm to community banks, I will not hesitate to use these tools to ensure they remain fully protected." The upcoming vote will decide if the act enters final voting procedures or gets pushed back. ([email protected])0353 GMT - BlackRock Investment Institute stays pro-risk even as global rates raise the hurdle for returns. Higher rates and strong equities can co-exist, strategists say. When higher yields reflect robust investment and growth, resulting earnings strength can help offset higher capital costs. Exceptional earnings growth, attractive valuations and a cleaner tactical backdrop support its U.S. and AI overweight positions, and a return to overweight in EM equities. However, BlackRock sees little room for complacency amid risks like renewed energy prices keeping inflation elevated just as the Fed faces a tough choice. A hold could test its credibility, with term premium acting as a release valve as investors demand more compensation to hold long-term bonds. That could push yields higher and raise the bar for equity returns. ([email protected])0333 GMT - The Singapore dollar weakens against its U.S. counterpart in the Asian session as gains in U.S. Treasury yields improve the appeal of U.S. dollar-denominated fixed-income assets. Overnight, the 10-year U.S. yield rose above 5% for the first time since 2023. Investors are cautious ahead of the Fed's interest rate decision later this week, Phillip Securities' research team says in a note. The Fed is widely expected to raise interest rates, they add. The U.S. dollar rises 0.1% to S$1.2716.([email protected])0332 GMT - China's new-home market is showing tentative signs of stabilization, but not a broad recovery, says Yuhan Zhang, principal economist at The Conference Board's China Center. The latest data show divergence even among major markets, with the secondhand housing sector considerably weaker than the new-home segment. The gap is economically important, says Zhang. New-home prices are stabilizing selectively, aided by policy measures, developer pricing strategies and stronger projects in core cities. Resale prices--which respond more directly to demand and sellers' willingness to cut prices--show underlying market confidence remains subdued. "We see some signs of stabilization in a few high-demand markets like Shanghai, but the nationwide picture is still not buyers bidding prices higher." ([email protected])0310 GMT - China's economy continues to show diverging signals, as consumption and investment remain weak, while industrial production powers on, says Zhiwei Zhang at Pinpoint Asset Management. Data earlier showed expected weakness in retail sales--a gauge of consumption--alongside continued contraction in investing activity and solid growth in factory output. Unemployment edged higher, while the property sector's struggles persist. After the economy slowed in 2Q, Zhang says the market is waiting for fiscal policy to become more supportive in 3Q. But there is so far no clear sign of stronger fiscal spending yet, he adds. That leaves China's economy open to downside risks as it will take time for fiscal support to be implemented and transmitted. ([email protected])0304 GMT - Indonesia's appointment of new finance minister Suahasil Nazara suggests fiscal prudence, policy continuity and confidence amid macroeconomic uncertainty, CIMB economists say in a note. His appointment is seen as timely, as the country is facing higher oil prices. Brent crude oil prices hovering around $110 per barrel increases Indonesia's fiscal and inflation risks. Recent natural disasters in the country could also weigh on economic growth and add to spending needs, they note. However, as Nazara is a seasoned fiscal technocrat and a familiar policy hand, his experience should support policy coordination and execution. This would help anchor market confidence while balancing growth and stability, they say.([email protected])0253 GMT - Global auto sales will likely decline by 4% this year due to weakness in China, Daiwa analyst Kelvin Lau writes in a note. Global auto sales will likely remain sluggish next year, with weakness persisting through 2029, he adds. An increasing number of automakers are using their current technology and capital to develop new segments such as humanoid robots to maintain long-term profitability, he adds. Among the automakers, Daiwa's top picks are BYD, Hyundai Motor and XPeng under the transformation theme. XPeng plans to ultimately sell part of its humanoid robot business in the coming 18 months, but remain a controlling shareholder. ([email protected]; @ivy_jiahuihuang)0247 GMT - Taiwan central bank's September rate decision looks to be a close call. Four of seven economists polled by The Wall Street Journal expect the central bank to stand pat. Economists who expect the Central Bank of the Republic of China to stay on hold for a 10th consecutive quarter think a benign August inflation read suggests no urgency for a hike as the island economic growth remains robust. However, Deutsche Bank expects the CBC to raise rates by 12.5 bps at both in September and December, taking the policy rate to 2.25% by end-2026. ING economists, who call the situation "close to a coin flip," reckon that the Federal Reserve decision before the CBC meeting could affect things. ([email protected])0224 GMT - Asian currencies mostly weaken in Asian trade, after the 10-year U.S. Treasury yield surged above 5% on Monday before settling at 4.960%. The rise in Treasury yield was driven by persistent inflation concerns, elevated oil prices, large government borrowing requirements, and heavy corporate issuance associated with artificial intelligence investment, Commerzbank Research analysts say in a note. The 5% level is psychologically and economically significant, they note, as sustained yields above the level would further tighten financial conditions. The U.S. dollar rises 0.3% to 154.82 yen and 0.45% higher at 1353.14 won, while the Australian dollar is 0.15% lower at US$0.7126, LSEG data show.([email protected])