Street Calls of the Week
The S&P 500 managed to rise by about 50 bps on Wednesday, although almost all of the gain came in the final 30 minutes. The rally into the close looked fairly fabricated, controlled, and out of the ordinary. It appeared very mechanical and algorithm-driven.
There was about $2 billion to buy on the S&P 500 going into the close, which may have contributed to the move, but it would not be surprising to see it erased today. I have nothing further to add.
Rates fell sharply on Wednesday, with the 10-year yield dropping by 4 bps to finish at 4.22%. This followed a lighter-than-expected JOLTS report, alongside downward revisions to the June figures. Today brings ADP and ISM Services, with the jobs report due on Friday.
Tension will be building, and the bond market is likely to see increased volatility over the coming days. The 4.2% region has acted as support for some time, and that has not changed—at least not yet.
Rates in Japan continue to inch higher, with the 30-year yield recently breaking out of a consolidation and resistance zone—just in time for the auction on September 4. It is hard to say where the 30-year may head in the short term, given that it has now broken out to all-time highs. However, a back-of-the-envelope extension from the recent consolidation suggests a move to around 3.4% in the coming days, up from the current 3.29%.
Rising rates in Japan and falling rates in the US mean spreads are narrowing. On Wednesday, the US 5Y–JGB 5Y spread fell to 2.58%, its lowest level since August 2022. Yet USD/JPY continues to tread water. Obviously, more is at play here than just the spread, but it seems significant that the spread is dropping while the yen is not strengthening. From what I can tell, the only other time this occurred since 2022 was in the summer of 2024.