The US Supreme Court has said that Trump’s imposition of ‘emergency’ tariffs was unconstitutional. He duly announced 15% tariffs under the 1974 Trade Act. Read on for a breakdown of fixed income news across sectors and regions.
Macro/government
The US two-year yield rose by 7bps last week. This came as the minutes from the US Federal Reserve’s December meeting pointed to a rate of inflation that remains stickily above target, while the downside risks to employment have diminished. Some participants argued that upward adjustments to interest rates could be necessary, challenging the narrative of a descending rate path. The probability of a June rate cut declined from 56% to 44%.
In Japan we saw a yield curve flattening. This reflected reduced fears of aggressive fiscal easing by the new government, yen strength, and the unwinding of short positions. The Japan 10-year yield fell by 11bps.
Geopolitical risk continues to cast a shadow over the market as Trump moved more military assets to the Middle East in a bid to force the Iran regime into a nuclear deal.
Portfolio activity We closed a strategic short position in Japan and added to a tactical outright long position in New Zealand. Sluggish growth and the prospect of further disinflation in New Zealand mean there is scope for easier monetary policy.