The steepening in the yield curve is the story in European trading today
The surge higher in Treasury yields is the key focus in European morning trade, as the selloff in the bond market continued post-Fed with 10-year yields reaching its highest levels since January last year - nearing 1.75%.
While the Fed may be able to keep the short-end in-check, there wasn't much push back against the long-end as the central bank demanded more before even considering to change its policy stance; and the market is responding accordingly.
In essence, the market is convinced that the vaccine rollout will fuel more bullish economic expectations and lead to higher - and likely - more sustained inflation. That will also get the Fed moving sooner than what the less hawkish dot plots suggested yesterday.
But whether or not the market is right, or is getting too ahead of itself, remains to be seen. As such, economic data in the next few months is going to be paramount.
Quite honestly, I didn't anticipate such a steepening to take place all in one session today but alas, the market will do what it wants to do and follow the path of least resistance - or from the looks of it today, the path of no resistance.
In any case, at some point we'll be moving closer to 2% yields, but I would argue that for Treasuries to keep at those levels, it needs the backing of economic data.
Otherwise, we might be closer to a top in yields than currently anticipated - at least until the Fed decides to come around on its tapering stance, which is unlikely to happen any time before Q4 2021 or Q1 2022 at the earliest.
For today, higher yields is keeping the dollar underpinned as it tries to recover some ground after the knee-jerk reaction to the FOMC meeting yesterday.
The moves are modest but not stepping on key near-term levels across the board yet. EUR/USD is weaker but holding above its key hourly moving averages. GBP/USD has brushed aside early weakness to keep higher ahead of a potentially hawkish BOE.
Meanwhile, USD/CAD still looks poised to extend its break to the downside yesterday below 1.2400 while USD/JPY is still keeping in and around 109.00 for now.
Elsewhere, equities are seeing the familiar rotation play come about with Nasdaq futures down 1.0% while Dow futures are up 0.2% on the day.
