US Treasuries rally on dovish comments by BoE’s Carney

The US Treasury rallied across the curve on Friday, reportedly driven just by Asian buying as JGB yields continue to slide after Bank of England Governor Carney suggested that he was prepared to deliver fresh stimulus in the wake of the UK Brexit vote.

The yield on the benchmark 10-year Treasury note fell 6-1/2 basis points to 1.429 percent and the yield on short-term 2-year note dipped 2 basis points to 0.570 percent by 12:45 GMT.

In terms of data, little reaction was seen from an increase in jobless claims (still reading positive for further job gains) and a stronger than expected print from Chicago PMI for June, bolstering prospects for some improvement in Friday’s ISM Manufacturing release.

In addition, the BoE's governor Mark Carney said the central bank will probably have to ease policy over the summer and the referendum implications for the UK economy are not yet clear, but a 'material slowing' is now the BoE's central forecast.

He further added that uncertainty could remain elevated for some time and have more persistent drag on activity. He also sees risk of tighter financial conditions and of spillovers to other economies. This suggests that a 25 basis points bank rate cut to 0.25 percent can be expected during the August 4 MPC meeting.

The St Louis Fed President Bullard sees growth continuing at 2 percent and Brexit won't have a big impact on the US, maybe none, and doesn't see further contagion on Europe. In any case the Fed will surely now hold off from any rate hikes until at least after the US election.

On Thursday, US Initial jobless claims for the week ending 25 June increased +10k to 268k, in line with expectations for a 267k result, as compared to the revised 258k reading seen in the week prior (previous was 259k).

The 4-week average was reported at 266.8k, unchanged from the revised 266.8k reading seen in the week prior (previous 267k). Meanwhile, continuing claims for week ending 18 June decreased to 2.120 million, versus the 2.140 million reading seen prior. The insured unemployment rate decreased to 1.5 percent (down from 1.6 percent).

Lastly, markets now look ahead to ISM Manufacturing, construction spending and vehicle sales as we approach the holiday weekend.

However, clear focus will now begin shifting towards the June employment report next Friday, though is not likely to trigger a market response in the direction of tighter policy following the UK referendum.

Meanwhile, the S&P 500 Futures down 0.75 point to 2,089.5 by 12:45 GMT.