Yesterday, global core bond markets consolidated further ahead of the Fed meeting, but German bonds underperformed US Treasuries. Initially core bonds gained marginally on weaker oil and equity prices. US Treasuries briefly rallied on weak US retail sales . However, the bid dried up soon. US Treasuries and Bunds were sold afterwards amid a weak NAHB home builders’ survey, but slightly rising oil and equity prices. US Treasuries erased all initial gains, while the Bund fell well below opening levels, approaching the recent lows. In a daily perspective, US yield increased up to 1.3 bps (5-yr), with the 30-yr yield flat. Pre FED price action triggered a USD rally on Monday which has been confined to being a correction in most currencies so far. JPY has lost some ground in the morning on Kuroda and USD strength but is far from being in such a trend. Most emerging markets including Asia has been correcting and losing value after some days of gains. ZAR lost considerable ground on politics and news surrounding the finance minister. Gold has lost ground with less risk aversion and higher interest rates around the globe. It seems at this point higher interest rates will set the tone unless the FED is ultra dovish, USD should be relatively supported but it is not likely for Emerging Markets to lose all traction in this environment. Only trigger for a considerable USD move would be a EURUSD break lower, which seems to be building since the recent stop run higher.
