Treasuries rally, 10Y back to 5.09%, and the peso sits it out

Good morning!

Money ran for cover overnight and Treasuries were the trade: the 10Y shed 10bp to 5.09%, more than twice its normal daily range. Textbook risk-off usually hands an EM currency a bid. The peso declined it.

A classic safety bid, minus one guest

The pattern is straight from the manual: equities down (S&P -1.11%), gold up 1.66%, Bitcoin off 1.07%. VIX ticks to 17.45 and MOVE stays tight at 99.06, so today's anxiety lives in rates more than in stocks.

Yesterday's 3.7% CPI had pushed the 10Y to 5.28%; the market is buying that fright back today. The Risk On index slips from 42 to 40, DEFENSIVE: weak equity, sunk Bitcoin and gold as the only paid haven.

Why the peso stayed on the sidelines

A falling yield normally helps EM carry. Not this month: the 20-day peso/bond correlation sits at just +0.14, effectively unplugged. USD/MXN opens +0.20% at 18.5172, EUR/MXN up 0.45% at 20.7427.

It makes me uncomfortable to hold the line with the pair nearly five ATR above its 20-day mean, rare air, but stretch doesn't pay on its own; over 21 years, fading it from here loses more than it makes.

The view: still long dollar

My October 8 long-dollar call matured today and validated: USD/MXN ran +3.02% over five sessions. The house signature is saying it the same way when a thesis misses.

Yesterday's trigger, dropping the bias on a close back below 18.20, never came close. The rolling ceiling rises from 18.546 to 18.6040 as the range drifts higher, and with soft crude (WTI 93.84) and this risk tone, I stay with the greenback.

No close under 18.20, and the dollar keeps the day.

— See you tomorrow for Friday's view.