US Open – Bond Yield Spike Weighs on Futures

U.S. futures are being hit heavily ahead of the opening bell on Wednesday, with selling being largely driven by moves in Europe as another spike in eurozone bond yields prompt across the board selling.

These sudden moves in bond markets always have repercussions for the broader markets as investors look to re-balance their books and cover losses made on fixed income positions. There didn’t appear to be a specific trigger for this morning’s selling but the overall weakness is being put down to higher inflation expectations helped along by the recent rise in oil prices that’s seen it trade at 2015 highs.

Bill Gross recently referred to the Bunds as the short of a lifetime and while I agree that this could well be the case in the longer term as yields revert to their mean, it takes a brave person to go against the European Central Banks bond buying program in the short term. Yields may not again reach the lows they have this year if oil stabilizes around $60-70 in Brent crude and $54-64 in WTI crude, but ECB bond buying should keep them low which could encourage dip buying.

The U.K. will go to the polls today to vote on what is expected to be the closest election in decades. Polls have the Conservative Party and the Labour Party pretty much tied with around a third of the vote each, which would not be enough to form a majority government.

*A combination of all major polls from the BBC’s poll tracker page.

With that in mind, this could begin days of negotiations between the different parties as both sides look to either form a coalition or make deals that would get Conservative leader David Cameron or Labour leader Ed Miliband into 10 Downing Street.

The polls close at 10pm in the U.K. and therefore while we may see a lot of volatility today, as we saw back in 2010, we’ll have to wait until tomorrow to get a lot of the reaction to the voting. This should make for an interesting end to the week in the markets, with the U.S. jobs report also being released tomorrow and the possibility of a Greek default hanging over the markets as we approach Monday’s eurogroup meeting.

U.S. jobless claims will be released today and are expected to rise slightly to 277,000, which is still a very good number and points to a healthy economy, despite the difficulties faced in the first quarter. I think data like this does point to underlying strength in the economy which is why the Federal Reserve seems determined to raise rates this year despite all of the noise in the first quarter.

The S&P is expected to open 11 points lower, the Dow 99 points lower and the Nasdaq 28 points lower.

For a look at all of today’s economic events, check out our economic calendar.

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