Global Markets: US Treasuries Show The Way

Today’s disappointing US non-farm payrolls notwithstanding, the global economy picked up momentum in July, providing initial confirmation to our view that growth had troughed and would improve in the second half of 2013. Most notably, manufacturing purchasing managers’ indices, from China to the US, were in expansionary territory (above 50.0) in July, with the US hitting a particularly impressive 55.4. Even the eurozone published a reading above 50.0 for the first time in two years.

Against this backdrop, it is little surprise that bond markets have been selling off. Although we do not believe it provides the most appropriate fundamental comparison, the side-by-side chart of 10-year UST yields in the 1994 and 2013 bond sell-offs shows eerie similarities, and suggests further fixed income downside.

As US equity markets hit new highs, we still see little value in fixed income, and think 10-year Treasury yields could end the year at 2.75-3.00%. This will have implications across global markets, as everything from the weakness in current account deficit currencies (such as the Indian rupee (INR), South African rand (ZAR), and Turkish lira (TRY)), to the ratio of discretionary to staples stocks, has tracked the 10-year Treasury yield since the start of Q2 2013.

This Week’s Trivia Question

Last week, our trivia question concerned the anniversary on July 27 of the end of a 20th century conflict in which, among other nations, Chinese troops fought against troops from a Latin American country. We asked, what was that conflict, and which Latin American country was it? The answer is the Korean War (1950-1953), and the Latin American country in question is Colombia, which sent troops to fight on behalf of the US-led allies of South Korea.

This week’s question is as follows: In light of the fact that a cleric is about to be sworn in as Iran’s new president, we ask, when was the last time that a cleric served as head of state of a European country (excluding the Vatican?). Who was that individual?