The United States Treasury Department is set to sell $39 billion in 10-year notes, amid a backdrop of complex international financial developments. The US and Canada are embroiled in a trade dispute following Ontario’s imposition of a 25% surcharge on electricity sales to the US. In response, the US has retaliated by doubling its intended tariff on Canadian steel and aluminum to 50%. Meanwhile, both onshore and offshore yuan have shown strength this year, rising nearly 0.8% and 1.3% against the US dollar respectively.
Market indicators have shown strain due to an eight-cent, two-month rally, while the US 10-year premium over China has narrowed by just over 50 basis points since the end of last year. Yesterday's $58 billion three-year note sale yielded a small tail but demonstrated firm demand, reflecting ongoing interest in US securities despite market volatility.
The US two-year premium over Canada peaked at 163 basis points in early February, the highest since 1997, before pulling back to around 135 basis points. This adjustment comes as the Bank of Canada meets today, with a rate cut widely anticipated following an aggressive strategy of 125 basis points in cuts between September and December last year.
In the manufacturing sector, output has declined by 1.2%, while mining and utilities have decreased by 1.0% and 1.9% respectively. Construction has also faced contraction, falling by 2.1%. These figures contribute to a broader economic picture marked by fluctuations and adjustments across various sectors.
The Mexican peso has shown resilience, outperforming the Canadian dollar, which has fallen approximately 0.35%. The year's low for the peso was recorded on January 24, near MXN20.1345. Meanwhile, Canada faces challenges with inflation running near zero over a six to seven-month view.
The German yield curve has steepened nearly 30 basis points this month, now standing at 70 basis points. This development is yet another indicator of the shifting global financial landscape as countries respond to domestic and international pressures.
As the Treasury moves forward with its note sale, these financial tensions highlight the interconnectedness of global markets and the delicate balance policymakers must maintain. The evolving dynamics between the US, Canada, and China continue to shape economic forecasts and influence investor confidence.