Rates as of 0500 GMT

Market Recap

Dramatic moves in the FX market! JPY pairs saw 3standarddeviation SD moves, with EURJPY moving 4 SDs. EURUSD saw almost a 3 SD move as the pair falls 1.9 to the lowest level in 20 years. USDCAD also moved almost 3 SD. Silver plunged 4.9 in a 2.3 SD move. GBPUSD had a 2 SD move as the pair fell through 1.20.

Once again the motivating factor was fear of recession. Twoyear bond yields fell across the board as market participants expect that a recession in the near future will limit central banks room to tighten rates. Twoyear yields reflect that change in view because a twoyear yield can be thought of as an overnight rate rolled over 730 times and so is sensitive to changes in the expected overnight rate.

Note the especially large decline in German bond yields. This is particularly noteworthy because German inflation expectations also rose sharply at the same time.

The result was a huge decline in German real yields, which may explain why EUR plunged. Against that, Japanese real yields edged up a bit, which may explain some of the extreme extraordinary movements seen in JPY pairs.

JPY would be the main beneficiary of a reassessment of tightening fears. One of the main reasons why JPY has plunged this year is because of the widening interest rate gap between Japan and other countries, which makes it more attractive for Japanese investors to put their money abroad and for foreign investors to borrow in yen to fund other…