Treasury Yields Change Little Despite Falling Oil Prices — Market Talk

1555 ET - Treasury yields start the week little changed after a volatile stretch, despite a sharp drop in oil prices. WTI crude falls 4%, to $96 a barrel. The WSJ Dollar Index, meanwhile, rises 0.1% as the greenback strengthens 0.3% against the yen and 0.2% versus the euro. Markets keep pricing at least one interest rate hike by the Fed in the next two meetings of 2026, since last week's hike and hawkish communication. The Fed seems to regain markets' confidence, as long-term yields fall. The 30-year drops 0.031 percentage point to 5.296%, while the 10-year sheds 0.033 point to 4.962%. The two-year rises 0.009 point to 4.751%. ([email protected]; @ptrevisani)1423 ET - The recovery in Canada's home resale market looks to be losing steam and activity remains low by historical standards, National Bank's Daren King and Evelyne Gosselin say. Sales fell 0.7% on-month in August, snapping a five-month streak of increases. King and Gosselin say a major headwind looms. Canadian and U.S. bond yields have surged since the start of the Iran war, yet mortgage rates haven't fully kept pace which has significantly squeezed lenders' margins. A rise in fixed-rate mortgage rates is therefore highly likely in the coming weeks, the pair argue. And sooner or later rising financing costs will weigh on affordability and undermine an already precarious recovery, unless geopolitical or trade tensions ease, they say. ([email protected]; @RobbMStewart)1423 ET - Bitcoin could extend its latest rally to $90,000 if long-term investors can join the buying streak, Nansen analyst Nicolai Sondergaard says in a note. The latest run-up was driven by a combination of renewed ETF demand and a big short squeeze, not a macro-driven accumulation event, the analyst says. The biggest traders on Hyperliquid are still net short, and more bitcoin is moving into exchanges than out of them, showing that crypto-native holders haven't embraced the rally, he says. Until they do, the run-up is vulnerable to a reversal if the ETF inflows weaken or Treasury yields push higher again, he says. Bitcoin is trading around $85,800, up 5.8% from a day earlier, according to CoinGlass. ([email protected])1240 ET - Bank of Canada Gov. Tiff Macklem stands ready to raise rates to contain inflation but that's not necessarily a foregone conclusion, says Royce Mendes, head of macro strategy at Desjardins Capital Markets. Mendes' reasoning comes after parsing through remarks from Macklem in Atlantic Canada, where he described the competing forces policymakers are grappling with — namely, elevated trade uncertainty and upward inflation risks. Mendes says that the BOC could raise rates as early as late October, so long as crude-oil prices remain over $100 a barrel and the CPI report for September shows a broadening of inflationary pressure. ([email protected]; @paulvieira)1127 ET - The jump in eurozone energy prices this year due to the Middle East conflict has been smaller in scale than the 2021-22 price shock, helped by a softer link between wholesale prices and consumer bills, ECB economists say in an economic bulletin. The impact of wholesale gas prices on wholesale electricity prices has been damped by a shift toward electricity generated from renewables, they say. It comes as the passthrough of wholesale prices to retail prices has sped up for gas prices overall, but less intensely for electricity, with variation among different countries remaining in both cases, they say. "This implies that wholesale energy price dynamics require close monitoring, as their passthrough to consumer prices remains an important source of near-term volatility in inflation," they add. ([email protected])1053 ET - Investors are becoming more cautious and requiring higher premiums to invest in newly issued bonds, ING's Jeroen van den Broek and Timothy Rahill say in a note. High volatility in sovereign bond yields has led investors to demand around 10 basis points to 15 basis points of extra compensation on new credit issuances, they say. ([email protected])1050 ET - There is a long list of variables that can influence term premium on longer-dated government bonds, but broadly speaking "the higher the uncertainty about the predicted path of short-term interest rates in the next 10 years, the higher the premium should be," TwentyFour Asset Management's Felipe Villarroel says in a note. Accordingly, "this premium should rise when uncertainty about future inflation rises (as this increases uncertainty about the future of short-term rates)," the portfolio manager says. Also, if budget deficits are elevated and there is an elevated supply of 10-year bonds, then yields required by investors should increase even if expectations for short-term rates remain unchanged, he says. However, "importantly, a steepening of the yield curve does not necessarily mean term premium has increased." ([email protected])1047 ET - Chicago Fed President Austan Goolsbee says he is especially attuned to elevated inflation in service-sector industries, and to any evidence that AI data center construction is spilling out of its own lane and raising aggregate output beyond what the economy can absorb. "If demand overheats, there is no ambiguity about how the Fed needs to respond," Goolsbee says while delivering remarks in London. Goolsbee also says that recent supply shocks in the economy, including in oil, have been nothing like the "one and done" pattern that underpins the case for looking through. ([email protected])1013 ET - U.S. Treasury yields retreat as oil prices fall, easing inflation concerns following the weekend meeting between Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng where they discussed trade, AI and the Iran conflict. "Once we get on the other side of this conflict, which we will, I think the oil markets are going to be more supplied than they previously were, and rates should come down," Treasury Secretary Scott Bessent says on CNBC. The 10-year Treasury yield sits around 4.97%, while the 2-year Treasury yield hovers around 4.74%. ([email protected])1000 ET - The recent renewed rise in natural gas and energy prices leads Morgan Stanley to revise its inflation outlook materially higher, its economists say in a note. The bank adds another European Central Bank rate hike in December to its forecasts, followed by a much shallower easing cycle in 2027. But energy prices don't alone explain the change in outlook. "Euro area activity has proven more resilient than anticipated, reducing concerns that modest additional tightening would derail growth," they say. As a result, the ECB is increasingly focused on preventing higher energy costs from bleeding into other parts of the economy, even as interest rates move further into restrictive territory. The energy shock has changed the inflation conversation, but resilience in growth has changed the policy conversation, the economists add. ([email protected])0936 ET - The Chinese yuan could strengthen further if a summit between President Trump and his Chinese counterpart Xi Jinping on Thursday proves constructive, HSBC's Paul Mackel says in a note. An extension to the trade truce reached in Busan, South Korea, in 2025 would bode well for the yuan, he says. The People's Bank of China has also recently increased its daily fixings for the dollar versus the yuan, showing more tolerance for yuan appreciation. "This could be partly related to a busy political calendar as well with the Xi-Trump meetings this week and an expected EU summit in mid-October." The dollar trades steady at 6.6953 yuan after reaching 6.6947 earlier, its lowest level since January 2023, according to LSEG. ([email protected])0930 ET - The euro could continue to trade between $1.13 and $1.20 during the rest of this year, marking the narrowest range on record, Deutsche Bank's George Saravelos says in a note. The dollar is supported by high energy prices and U.S. interest rate rise expectations. However, rate rise expectations could be priced lower as they are above the amount indicated by the Federal Reserve, he says. The U.S. has also become reliant on stock market inflows to finance its current account deficit, leaving the dollar exposed in the event of an AI-driven fall in equities. In Europe, capital inflows are robust, while growth has proved resilient. That said, the energy shock has weighed on Europe's terms of trade, he says. The euro trades steady at $1.1482. ([email protected])