Yield Rally Stalls as Markets Digest Data, Fedspeak

Swap rates reverse course, fall 9bps across most tenors. After swap rates rose 25+ bps across the curve following last week’s elevated inflation data, duration buyers came to the forefront. Rates grinded lower throughout the session, highlighted by strong demand at today’s $13B 20y UST auction. Meanwhile, equities sold-off for the fourth straight session, headlined by NASDAQ’s 1.15% decline. The NASDAQ, S&P 500, and DJIA have fallen 1.81%-2.48% over the past month, a stark contrast to the Q1 rally that was the strongest since 2019.

US imposing sanctions on Iran after attack on Israel. White House National Security Advisor Jake Sullivan said yesterday that the US is coordinating with other G7 nations and allies to roll out new sanctions targeting Iran’s missile and drone programs. The development comes after Iran launched strikes on Israel over the weekend. The announcement from Sullivan came the same day as US Treasury Secretary Yellen said, “With respect to sanctions, I fully expect that we will take additional sanctions action against Iran in the coming days…from this weekend’s attack to the Houthi attacks in the Red Sea, Iran’s actions threaten the region’s stability and could cause economic spillovers.”

BoE Governor Andrew Bailey hints at rate cuts as UK CPI falls to multi-year low. UK inflation was higher than expected in March but still fell to its lowest rate since September 2021. CPI slowed to +3.2% YoY from 3.4% in February, while core CPI dropped to +4.2% from +4.5%. BoE Governor Bailey suggested that the UK faces smaller risk of suffering a similar inflationary setback as the US, as he said there is more “demand-led inflation in the US… in Europe, inflation dynamic look somewhat different.” He added that there is “strong evidence” of price declines, and he expects next month’s data to show “quite a strong drop.”