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Video / 05 February 2018 at 8:29 GMT

From the Floor: Surging yields spark risk flight — #SaxoStrats

#SaxoStrats
   • Core FX pairs 'don't know what to do' as risk-off widens
   • CAD sells off as crude oil corrects lower
   • 'This is the largest risk parity selloff since November 2016': Garnry
   • Utilities, consumer staples, healthcare likely to catch a bid
   • Gold shows resilience as funds add long positions

SaxoStrats
By Michael McKenna

"We saw even more action in bond markets Friday," says Saxo bank head of fixed income strategy Simon Fasdal, "with the US 10-year yield touching 2.87%".

The spike in bond yields has prompted a broad risk-off move in markets with US equities tumbling, crude oil losing ground, and forex markets in a state of confusion.

"The move impacted emerging market currencies hardest," says Saxo FX head John J Hardy, adding that "core FX still "don't know what to do" with the risk-off move.

"One currency to watch is AUD," notes Hardy, "where EURAUD stands just shy of the important 1.57 level while AUDUSD support at 0.79 could come into view as well".

EURAUD

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Source: Saxo Bank 

CAD is lower as well as crude oil corrects lower, notes Hardy, while Saxo commodities head Ole Hansen reports that funds have made their first small reduction in bullish bets in six weeks.

"Gold prices caught some contagion from the rout seen in bonds, but the metal is still showing some resilience with funds continuing to add long positions," says Saxo's commodities chief.

Given the scope of leveraged bond trades at hedge funds, reports Simon fasdal, "it's hard to see how a flight from bonds could be gentle."

Crude oil
Crude is one of many assets knocked lower by the flight from bonds. Photo: Shutterstock 

Michael McKenna is head of editorial content at Saxo Bank
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