• Debt markets making big, unusual movements
  • EURUSD is re-balancing, could keep moving
  • USD nervous for tomorrow’s payrolls announcement
  • No progress in last night’s Greek meeting

ECB President Mario Draghi told markets to get used to increased volatility yesterday, he could hardly have picked a better day for it. Movements in debt markets through the past 48 hours have been historic and have called into question the consensus expectations for currency markets moving forward.

If you had lent money to the German government yesterday morning for 10 years, then you would have received a yield on that money of 0.5% – this morning it is 0.93%. That doesn’t sound like much of a move but is the single largest day’s move since 2013 and the biggest move in a 2 day period since 1998. Yields rise as bond prices fall and German debt, alongside the debt of almost every other country, has been sold heavily in the past month or so.

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These bonds were originally bought as rather safe haven assets from a) deflation in the global economy and b) fears around Greece. Recent news has lessened the need for these bonds and they are selling off. As those yields move higher, however, the attraction of holding the currency with which that debt is denominated is increased.

Euro drove to 1.1380 against the US dollar through the past 24hrs and who’s to say that it won’t continue? Some have called the recent moves a rout, some called them rebalancing – there is a lot of story left in these markets.

No movement elsewhere

Talks between Greek PM Tsipras and European Commission President Juncker overnight in Brussels have failed to break any impasse. Tsipras told reporters “don’t worry” about Friday’s EUR305m payment. It seems to me that the only deadline really worth worrying about is the original end of the extension program on June 30th.

One thing not to be worried about today is the Bank of England. Raising rates before the election was seen as a no-no, so raising rates before some clarification on Greece will probably be the same. I can see rates staying as they are through the end of the year.

News for the USD in the past 24hrs hasn’t been great and dollar bulls will be pinning hopes on tomorrow’s payrolls announcement to rescue the greenback. Comments from Fed members last night were on the dovish side of things, noting that the hurdle for a lift-off in rates is high. A slowing of the services sector in the US in May has fortified fears that Q1’s malaise has carried on into Q2.

The day ahead

Away from the Bank of England meeting, initial jobless claims from the United States have been closely watched to give us a better understanding of the labor market dynamics. 276,000 people claimed fresh unemployment insurance in the week ending May 30th. Higher labor costs seem to be pointing to wage pressures – we’ll find out more tomorrow morning.