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Weinberg Says Fed Hugging Rates Key For Bond Market

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Cracks appear in the bond market, Trump softens tone on immigration deal, and there are more Brexit warnings. Here are some of the things people in markets are talking about today.

Bulls hit?

Traders are bracing for what might be the end of the three-decade bond bull run, with former fixed-income king Bill Gross saying Treasuries have entered a bear market after the U.S. 10-year yield passed 2.5 percent. Dan Fuss, manager of the  $13.1 billion Loomis Sayles Bond Fund, said he had about 35 percent of his portfolio in reserves at the end of 2017, citing the lack of bargains. The pressure on government obligations has only been increased this morning with the news that Chinese officials have recommended slowing or halting purchases of U.S. securities. 

Compromise

The path to a bipartisan budget deal was opened by President Donald Trump who gave Congressional Republicans the green light to start negotiating an immigration package with Democrats. The latter have insisted that any compromise over the issue should form part of a spending agreement needed to keep the government open after Jan. 19. While the proposal gives both sides room to compromise on issues such as the border wall, the looming deadline might spur another stopgap spending measure in the short term.

Brexit warnings

Two U.K. ministers have warned that the EU risks sparking another global financial crisis if it doesn’t give London’s banks a good deal on access to the single market after Brexit, while research published by Bloomberg Economics shows the British economy will be hurt for more than a decade by a bad divorce deal. There was some good news though: U.K. factories are enjoying their best run of growth since 1997.

Markets drop

Overnight, the MSCI Asia Pacific Index was little changed, while Japan’s Topix index closed 0.2 percent higher. In Europe, the Stoxx 600 Index was 0.6 percent lower at 5:55 a.m. Eastern Time as global stock markets reacted to news some Chinese officials suggested the country pares exposure to U.S. Treasuries. S&P 500 futures dropped 0.5 percent, the yield on the 10-year Treasury was at 2.584 percent, and gold was higher.

Zuma pressure

South African President Jacob Zuma is fighting for political survival ahead of this weekend’s anniversary celebrations of the ruling African National Congress party. The president agreed to appoint a commission to look at any influence the powerful Gupta family was allowed to wield over state decisions, ahead of a meeting with the newly elected leadership of the ANC today. Yesterday, the rand rallied on speculation Zuma had unexpectedly resigned, possibly driven by news of the loss of a military satellite that bears his name. 

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