WHY HAS THE YIELD FOR THE 10-YEAR TNOTE STILL NOT BROKEN ABOVE 3%?

Macroeconomic environment Germany: Q2 GDP growth reached 0.5% qoq and 2.3% yoy (final estimate). Reasoning qoq , consumption increased by 0.3%, investment by 0.5%, exports by 0.7% and imports by 1.7%. Austria: industrial production declined by 1.5% yoy in June. US: durable goods orders declined by 1.7% in July. Excluding defence and aircraft, orders increased by 1.4%. Equities Relatively calm session Friday, with equity markets generally inching higher. In Europe, building materials put on 0.5%. Bond markets / Derivatives Core debts treaded water. Uncertainties over the Italian budget are continuing to weigh on peripherals, notably BTP (market largely disregard ed reports that Donald Trump has offered to buy Italian debt next year). Implied volatility was affected by the backlash after Thursday’s hedging flows, with an underperformance by gamma (long tenors in particular). The 10-year swap spread held around 53bp-54bp. Finally, breakeven for the 10-year Bund€i progressed to reach 1.29%, but even so it remains near its year’s low of 1.26%. Limited movement also along the US Treasury curve: even Friday’s speech by Jerome Powell failed to enliven the market to any great extent, yields creeping lower. The 10-year swap spread continued to progress, reaching 7.6bp. Only swap spreads at the very long end are still in negative territory, with the 30-year swap spread at -5bp. Money markets / Central banks In the US, the continuing increase in assets managed by prime MMF is the main explanation for the decline of the Libor-OIS spread. Although assets managed by these funds are still slower than before the MMF reform, they now stand at their highest level since September 2016. The 3-month Libor-OIS spread has narrowed to just 22.8bp, but its decline could be slowed by the significant TBill issuance. On the occasion of the Jackson Hole Symposium, Jerome Powell repeated that further gradual increases in the Fed Funds rate remain appropriate, his view being that the economy is not overheating. His speech was p erceived as being rather dovish . FX The DXY dollar index shed 0.5% as the speech by Fed Chair Jerome Powell was perceived as being dovish by the markets. The status quo over trade discussions with China weighed on the greenback, as these discussions have ended with no sign that any progress might be accomplished before the midterm elections, which could undermine Donald Trump and make him more inclined to seek a compromise. As a result, the Chinese yuan appreciated by 0.85% against the US dollar. The euro put on 0.72% on Friday, the Australian dollar more than 1% in reaction to the leadership contest won by Scott Morrison. Sterling depreciated by 0.51% against the euro, and is now at a near one year low. Commodities Brent extended its rise, breaking above $75/ bbl