The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.
0551 GMT - Bond markets could open in a reasonably good mood in Europe amid the prospect of diplomatic progress between the U.S. and Iran. This, along with Saudi Arabia moving to restart its East-West pipeline, has helped oil prices fall and reduce the upward pressure on bond yields. "Geopolitics remains center stage for markets," Jefferies' Mohit Kumar says in a note. "There is increased optimism that the U.S. and Iran may be moving towards some form of an agreement," the global economist says. (emese.bartha@wsj.com)
0542 GMT - Bonds are once again fulfilling multiple roles simultaneously, apoBank's Clemens Berendt says in a note. Bonds are generating ongoing income, diversifying risk, and they are also adding stability to a portfolio, the lead portfolio manager says. The outlook for bond investors in 2026 is significantly more favorable than in the historically weak year for bond markets in 2022 as current yield levels offer long-term investors the opportunity to lock in attractive portfolio returns for the years to come, he says. (emese.bartha@wsj.com)
0530 GMT - Current income has once again become a genuine driver of bond returns, rather than merely meager compensation for interest-rate risk, apoBank's Clemens Berendt says in a note. Higher running yields create a solid foundation for the future performance of a bond portfolio, the lead portfolio manager says. "With every coupon payment received, the income buffer grows, helping to cushion potential price fluctuations within the portfolio," he says. The historically weak bond market of 2022 demonstrated not the failure of bonds, but rather the consequences of extremely low starting yields combined with high duration, he says. (emese.bartha@wsj.com)
0521 GMT - UBS's rates strategy team has been advising clients to wait for better levels to go long 10-year German Bunds, French OATs and France versus Germany, rates strategist Reinout De Bock says in a note. In early July, UBS strategists called for a summer lull ahead of the budget discussions given contained fiscal risks in the near term, stable net supply to the market and strength in broader risk sentiment. "But spreads widened steadily and we think that 10-year French spreads around 90-110 basis points are a fair price for real macro risk." The 10-year OAT-Bund yield spread closed at 104.5 bps on Tuesday, having touched 105.6 bps during the session, according to LSEG. (emese.bartha@wsj.com)
0513 GMT - Since the Global Financial Crisis, fixed-income investors have generally been fixated on the Federal Reserve, and, more specifically, the fed funds rate, but recently, the market has become increasingly focused on long-term rates, Catalyst Funds' Larry Holzenthaler says in a note. "Inflation, shifting Fed expectations, government deficits around the globe, geopolitical risk and higher energy costs, AI spend that is both extremely price insensitive and competing for bond investment dollars, and a relatively strong economy in the U.S. have all contributed to a meaningful rise in long-term rates," the senior portfolio manager says. This began to accelerate in February with the beginning of the conflict in Iran and increased further in late June, he says. (emese.bartha@wsj.com)
0513 GMT - Eurozone government bond markets will focus on flash estimate PMI data for September on Wednesday, with risks to the downside, analysts at Daiwa Capital Markets say in a note. "Overall, we see the risks to the flash activity indices skewed slightly to the downside," they say. Recent drivers--concentrated amongst German manufacturers and Southern European services--could be difficult to sustain and the rise in global energy prices over the summer seems bound to reassert pressure on firms' input prices and potentially selling prices too, they say. "However, those risks are unlikely to detract from the wider picture of improving underlying growth momentum." (emese.bartha@wsj.com)
0500 GMT - Fitch Ratings expects the oil market to return to a substantial surplus in 2027. While it expects oil prices to fall next year, Fitch has raised its 2027 forecast for oil to US$70 a barrel from $65 a barrel to reflect the longer-than-anticipated Middle East conflict and the implications for the geopolitical risk premium. Analysts Brian Coulton and Alex Muscatelli acknowledge a high level of uncertainty around these projections. Assuming a deal between the U.S. and Iran takes shape in 1Q of 2027, supply and demand fundamentals could play a bigger role in determining oil prices. On the upside, geopolitical uncertainties could result in oil prices averaging $85 a barrel next year, while on the downside, a rapid recovery in supply could see prices fall to $55 a barrel, they say in a report.
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