US inflation data and Yellen could see bond-market sell-off continue - ING

Global markets have been characterised by the theme of rising bond yields and analysts at ING expect this to continue in the week ahead.

Key Quotes

“While the recent driving force has been the break out in 10-year Bund yields, catalysts this week stem from the US. Both robust US inflation data (Fri) – as well as Chair Yellen raising the prospects of a September start to the Fed balance sheet run-off process at her testimony to Congress (Wed) – should see a continuation of the steepening bias in global yield curves.”

“A higher USD/JPY is our preferred way to play any short-term US data rebound theme, though the negative correlation between bond yields and equities – consistent with a global monetary tightening shock – will need some monitoring. A sharper bond market rout could see a more pronounced correction in equity markets that weighs on risk appetite, especially given that those global ‘animal spirits’ seen earlier in the year are less obvious at present. G10 high-yielders would be in the firing line here; we like selling NZD/USD and see risks of a positioning adjustment fuelling a move back to 0.71. DXY to remain above 96.”