The poor report on Americans’ incomes and expenses set a downward direction for yields in the global debt market. The fire was also fueled by the downward revision (from + 0.3% to -1.0% q / q in SA ann.) Of the current estimate (nowcast) of GDP for Q2 by the Atlanta Fed (here). Incidentally, the UST curve decreased at key nodes by 13, 12 and 9 bp, to 2.92% (2Y), 2.97% (10Y) and 3.12% (30Y), respectively. Thus, the 10Y tenor dropped below the level to which it was boosted by the June 11 CPI reading (our comment here).

The same happened in Europe, where bond yields in the euro area fell by an average of 12 bps. with Irish papers (-18 bp.) at the fore. The German curve most closely followed by us fell by 16, 14 and 10 bp at the main nodes, to 0.68% (2Y), 1.37% (10Y) and 1.63% (30Y), respectively. The move was helped by the decisive sell-off of crude oil (second consecutive session) in the face of the US administration’s decision to release a large number of barrels from federal stocks (SWP).

We believe that the market takes some time to „acclimate” to the new narrative that inflation will not shoot to double-digit levels in the US and the euro area, and that the main word describing the economic outlook from „stagflation” will turn into „recession”. Nevertheless, today we see greater chances for drops in yields than for gains resulting from profit taking, even though it would be the third day of bond price increases in a row. This scenario should also be supported by the Eurozone PMI data, which have little chance of a positive surprise.