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Three is not the magic number

| Posted by: Paul Donovan | Tags: Paul Donovan

US Treasury bond yields are flirting with 3%. What does this mean? It means 3% is a nice round number and bond dealers are simple people who like nice round numbers. Economically, 3% is no different from 2.98%.

Oil and its inflation consequences are being blamed for the bond moves. Inflation is about a general rise in prices, not about one price rising relative to other prices. Central banks should look through oil related inflation, unless higher oil prices encourage wage increases (which could create a more general price pressure).

One price that is falling is aluminum, as the US looks to change Russian sanctions. This is a rare instance of politics mattering to markets (because politicians are interfering in markets). The US special election in Arizona is less likely to be market relevant, other than by hinting at what might happen in the November mid-terms.

The data calendar is a desolate wasteland today. The highlight was the quarterly Australian consumer price inflation data, which was as expected. Otherwise, it is just US new home sales, and the German ifo and US Richmond Fed business sentiment opinion polls. No one could call the Richmond Fed survey a data highlight - not even in Richmond.