Greetings from Europe.

Another lukewarm Japanese bond auction, with both bid-to-cover and the tail looking weak, but Japanese bond yields are down a couple of basis points on the day—partly due to the soft cash earnings overnight, but also a sign that markets are no longer chasing fiscal worries across the globe, which admittedly makes the case for being short duration less compelling—and we are hence out of our fixed income bets.

While markets are starting to chase the growth/inflation-down narrative again across fixed income, the shift in narrative around the fiscal situation/debasement risks might actually be positive for the USD over the coming weeks, as every single story/theme over the past two months has resulted in the USD selling off—leaving positioning vulnerable to either 1) upticks in the growth outlook or 2) debasement risks cooling—and we accordingly find both USDCHF and USDJPY longs appealing as the growth outlook is changing and risk sentiment is improving.

Chart 1a: Weak JGB Auction, but Markets Don’t Care