The 10-year Treasury yield ended the day at 3.81%, just above the key level of 3.8%, which has been significant since the beginning of the year. This level is crucial because if support at 3.8% breaks, it could lead to a potential drop in the rate down to around 3.30%.
Big Jobs Revision on the Horizon?
Today, the market will see the release of the jobs data through the end of the first quarter, with concerns that it may reveal a significant revision showing as many as 1 million jobs less created over the past year. The movement in the 10-year yield suggests the market is anxious about this data, putting us on a yield curve steepening watch as the market continues to consolidate.
Additionally, there are indications that the 10/2 yield curve is heading in a certain direction over the next few months, based on current trends. The weakening state of the dollar also suggests nervousness in the market about the upcoming data expected at the start of September.
Recession Fears on the Rise Again
Falling rates, a steepening yield curve, and a weaker dollar typically point to rising recession risks. The current market signals these concerns, reflected in a weakening state in both the bond and FX markets. A strong yen against the dollar, with the USD/JPY falling back to 145.25, could impact equity markets if the trend continues.
The correlation between the Nikkei and the USD/JPY is significant, with both closely tracking the 10-year Treasury rate. If the 10-year rate breaks lower, the USD/JPY is likely to follow suit. This relationship could potentially lead to a lower USD/JPY in the future.
Overall, market instability in Japan could have ripple effects on the US market. As Nikkei futures trade down, a strong yen may not bode well for Japanese stocks, signaling potential market declines.
As we await today’s jobs revisions, keep an eye on the 10-year Treasury yield, the USD/JPY, and market movements on Friday for further insights into the financial landscape.
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