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RiskOff Mood as Taper Talk starts Cryptos Plunge

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Rates as of 0400 GMT

Market Recap

A generally riskoff day as European stocks fell sharply, and the cryptocurrency market imploded. Bitcoin was down more than 30 on the day at one point before recovering to finish US trading down around 12. Other cryptos, such as Ethereum, Litecoin, and XRP suffered similar or even greater losses.

One mightve expected this kind of chaos in risky assets to be a good background for bonds, but US Treasuries fell too on a poorly received 20year bond auction and especially a first reference to tapering in the minutes of the Feds April meeting. The key phrase was, A number of participants suggested that if the economy continued to make rapid progress toward the Committees goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases. So, in the immortal words of Fed Chair Powell, they have indeed begun thinking about thinking about tapering their purchases. This news sent bond yields higher and inflation expectations lower, with the result that US real 10year yields rose by some 9 bps, thereby supporting the dollar.

The riskoff mood was negative for the commodity currencies, with AUD and NZD being the major decliners. CAD fared better as Canadas consumer price index CPI came out higher than expected at 3.4 yoy 3.2 expected, 2.2 previously. Two of the three core CPI measures were also higher than expected too. This helped support CAD despite lower oil prices.

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