• 2-year Treasury yields down 4.1 bps to 4.021%
  • 10-year Treasury yields down 2.5 bps to 3.543%
  • 2-year German bond yields down 0.2 bps to 2.580%
  • 10-year German bond yields down 1.2 bps to 2.276%

For some context, 2-year yields in the US were as high as 4.12% earlier while 2-year yields in Germany were as high 2.64% at the open in European morning trade. As much as the relief from the banking turmoil is playing out, traders will have to quickly shift their focus to central banks and the general economic outlook.

Inflation will remain a key driver as well, and we will be getting data from the Eurozone and US in the days ahead. That will play into central bank pricing, which is still something that markets are figuring out as pointed out here.

I mean, there is some balance to be struck between safety bets and higher rates - which will make it tough for market players to really get a handle on things.

  1. The banking crisis ebbs and that allows central banks to continue with rate hikes to curb high inflation
  2. But further tightening of financial conditions raises more concerns about something else breaking
  3. That darkens the economic and financial outlook, increasing risks of a hard landing
  4. In turn, that could cause markets to lean more towards safety bets to hedge the risks

As you can see, it's not going to be that straightforward for traders to price in the bigger picture outlook after the events in the past few weeks.

For equities, we might be seeing some decent relief today with S&P 500 futures up 0.9% at the moment. But just be wary of things in the bond market, as that could have spillover effects on overall sentiment later in the day/week.