The market is keen to focus back on the reflation narrative
10-year Treasury yields are closing in on 1.20% and hovering at their highest levels since March last year, after having made steady progress to the upside last week. Adding to that is 30-year yields now about to clip the 2% mark ahead of European trading.
The key catalyst has been Biden's $1.9 trillion spending plan and the market has been more fixated on that now that the retail trading frenzy has died down.
The selloff in bonds reaffirms the notion that the market is convinced inflation is going to come back. This sentiment is also reflected in oil prices as Brent touches above $60 for the first time since January last year.
Just be wary of this space as it could lead to some spillover impact across other asset classes in the market. In equities, we could see a rotation back into value from tech and that could prompt some mixed sentiment as we have seen in recent months.
At the same time, the breakout for yields above those key levels could accelerate the selloff in bonds and that might temper with the mood in equities in general if things do proceed at a pace that is deemed too far, too fast.
Elsewhere, the impact on FX should be more clearly reflected in yen pairs and any push higher in yields will be a tailwind for USD/JPY to break its 200-day moving average @ 105.57 and go in search of an extended upside break.
