Daily Market Color February 8, 2017Flight to Safe Haven Assets Resumes with Global Political Uncertainty Treasurys rallied for the fourth consecutive session today while political concerns from around the globe continue to favor risk-off trading. Within the US, doubt surrounding the timing and execution of the Trump administration’s pledged pro-growth fiscal policies continues, as investors try to grapple with all the controversies connected to Trump’s initial actions during his first 20 days in office. Uncertainty in monetary policy also continues, with Minneapolis Fed President Neel Kashkari (voter) providing the latest Fed comments that perhaps three rate hikes in 2017 may not be appropriate. “Our near-term policy predictions have been wrong a lot over the past few years — better to not make such predictions in the first place,” Kashkari stated in a blog yesterday evening. He further explained his view that the jobs market may not currently be at full employment, and monetary policy over the past few years has been only moderately accommodative, with no signs of a strong return of inflationary pressures visible. Current probabilities for a March rate hike are sitting just below 5%, with the market pricing in only two rate increases this year despite recent rhetoric from a few other more hawkish Fed members. Treasury yields/swap rates are currently 2-8 bps lower across the curve in a bull steepening pattern, as the yield on the 10-year note reached a three week low of 2.34%. Equities have been trading sideways for the majority of the trading session, with strong corporate earnings being largely offset by political uncertainty. Abroad, with the backdrop of France’s presidential election (which many fear could lead to “Frexit”), coupled with the potential tightening of monetary policy by the ECB, there is significant European investor apprehension. Spreads between Italian and German 10-year government bonds reached their widest differential since 2014 as demand for German debt spiked, while gold prices rose to a three-month high near $1,240/ounce. In Chile, the threat of a strike by workers at the world’s largest copper-mining operation pushed copper prices almost 2% higher on the day. The BHP Billiton Ltd.-controlled Escondida mine in Chile accounts for roughly 5% of the world’s copper supply, and a production-halt there could lead to the commodity’s first substantive price increase since 2011. Today India’s central bank announced its unanimous decision to keep the benchmark repurchase rate at 6.25% and shift to a neutral stance on monetary policy. Leading up to the meeting, it was widely predicted that the RBI would make an additional 25 bps cut as part of its existing accommodative policy. However Governor Urjit Patel explained the move (or lack thereof) as a way to provide additional flexibility for the central bank in a time of rising energy prices, caused by political tensions and uncertainty in future US macro policies. The RBI further clarified its expectations for accelerated growth over the next year as the country recovers from the effects of last year’s large-note currency ban which stunted consumer demand and economic activity in the country more generally. Following the no change announcement, Indian government debt sold off, with the yield on the 10-year bond increasing 32 bps to 6.75%, its highest yield in three months.