New York, United States – The market sentiment regarding US Treasuries has turned dovish as investors brace for potential actions from the Federal Reserve in response to concerning labor market indicators. Last week, Federal Reserve official Waller emphasized the central bank’s readiness to intervene decisively if labor market conditions deteriorate significantly. This assurance has contributed to a strengthening disinversion of the US Treasury (UST) curve, with the 2-year to 10-year curve showing signs of improvement.

The disinversion of the UST curve was particularly notable on Friday when the 2-year to 10-year spread reached 6 basis points, indicating a shift away from the zero line. By Monday, the spread had slightly decreased to around 4 basis points, hinting at further curve steepening in anticipation of potential Federal Reserve rate cuts.

In Europe, the story was mirrored by steeper Bund curves, with the 2-year to 10-year spread still trending towards disinversion. Market participants are also eyeing upcoming EUR issuances from the European Union and Italy, which could add pressure to the steepening dynamics in the bond market.

Market sentiment in the eurozone was influenced by Waller’s speech, which was followed by disappointing investor confidence data and calls for increased EU investments. Despite these factors, risk sentiment remained stable, with equities advancing in response to expectations of forthcoming policy measures.

The political landscape in Europe saw appeals for increased EU investments and requests for deadline extensions on budget deficit plans. France urged the EU to postpone filing deadlines, highlighting the challenges faced by the newly elected Prime Minister in meeting fiscal targets. Meanwhile, financial markets seemed unperturbed by the proposed investments, reflecting ongoing stability in EU-Bund spreads.

Looking ahead, market participants are monitoring UK jobs data and the US NFIB small business optimism index for further insights into economic trends. Additionally, upcoming bond issuances from the EU, Italy, the Netherlands, Germany, and the UK are expected to provide additional signals about market conditions and investor sentiment.