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10-year Treasury yields

• For the first time since January 2020, 10-year Treasury rates have risen over 1.80 percent, approaching pre-pandemic levels. 
• Treasury rates are continuing to rise to begin the new year, and one might argue that the bond selloff is more technical, but it is also supported by a more hawkish Fed last week. 
• As of now, 10-year Treasury rates are expected to break 1.80 percent, with little chance of yields rising to the November and December 2019 highs of 1.95 percent to 1.97 percent. As a result, the 2.00 percent threshold is an important psychological level to be aware of. 
• The US employment report provided a sufficient catalyst for the bond selloff to continue, so keep an eye out for potential ramifications in FX and markets.
• As much as rising rates may be an issue for stocks, there won’t be much of a problem till we break through the March 2021 highs over 1.75 percent.” Even yet, one might argue that a rise closer to 2% would be important in dampening markets sentiment. 
• Otherwise, if the move does not go too far or too quickly, stocks may be able to breathe a bit better. There’s a fair case to be made that yields will rise this year, but it’ll happen rapidly in the first week or so. The danger is that the selloff is getting too far ahead of itself, and that things will stop for a while in the coming months.
• With inflation at current levels, the critical threshold isn’t so much the Fed raising interest rates to 1%. It’s more about tinkering about and achieving that 1% to 2% increase. That is doubtful unless current high inflationary pressures do not show signs of abating by next year.

USA

As technology lags, US futures fall. Higher bond rates are once again at work. Things are starting to come back into play. S&P 500 futures are presently down 0.2 percent, while Nasdaq futures are down 0.3 percent after rising earlier in the day.

European markets are also losing ground, with the Stoxx 600 index down 0.5 percent to a two-week low. As Treasury rates begin to approach pre-pandemic levels, equities may face more difficult times in the near future.

• As risk aversion fades, the dollar is in an excellent position to begin the week. 
• The drop in stocks is also dragging on commodities currencies. 
• The dollar has continued to be a strong performer to begin the new week, recouping some of its Friday losses. 
• The recent shift in risk sentiment will only assist, as Treasury rates continue to rise. 10-year rates are already above 1.80 percent, returning to pre-pandemic levels. 
• The AUD/USD has had its early gains almost completely wiped, as sellers also rely on the 100-hour moving average to bring the pair down from 0.7200 to 0.7177. 
• In the meanwhile, the NZD/USD is down 0.3 percent to a new session low of 0.6760.

Elsewhere, EUR/USD is down 0.3 percent to 1.1325, while USD/JPY has been trading in the 115.65-75 range since the start of the day. 

Be alert if the stock market’s downward trend gains traction. More substantial risk-off flows might enter the picture, allowing the dollar and yen to prosper later in the day.

Equities

• Stocks pare losses to be flattish, but the tone is cautious as the day begins. 
• European indices are presently flat on the day, as US futures recover a little from their early loss. 
• The Stoxx 600 index, as well as the DAX and CAC 40, are down 0.1 percent. Meanwhile, after falling into the red earlier, S&P 500 futures are up 0.1 percent, while Nasdaq futures are up 0.2 percent. This comes as Treasury yields’ early surge has slowed slightly. 10-year rates are up 2.3 basis points but remain slightly below 1.80 percent at 1.792 percent. Today’s high was 1.808 percent.
• In the currency market, the Australian dollar has fallen from previous lows of 0.7173 to 0.7189, while the USD/CAD has fallen to new one-month lows, falling from 1.2640 to 1.2616. 
• So far today, the dollar has held up nicely versus currencies such as the euro, franc, and kiwi.