Infrastructure deal hopes revived, Basel weighs in on Bitcoin and G-7 descends on Cornwall.

Group of 10

A group of 10 senators are reviving hopes for a bipartisan deal on infrastructure, days after President Joe Biden’s direct talks with a group of Republican senators 
foundered. A proposal backed by Republicans including Mitt Romney and Democrats including Joe Manchin
agreed to pitch a $1.2 trillion eight-year infrastructure spending package to the president, according to people familiar with the deliberations. The scaled-down proposal is limited to core physical infrastructure and omits the social programs such as elderly care Biden included in his “American Jobs Plan,” the people said.

Basel weighs in 

The Basel Committee on Banking Supervision proposed weighty capital charges on cryptocurrencies that would in practice leave a bank holding a
dollar in capital for each dollar worth of Bitcoin. While that may put off banks, advocates can declare a win because it establishes crypto as an asset class recognized by top banking authorities. Meanwhile, Bitcoin’s environmental costs were under scrutiny again as the Bitcoin Mining Council made its
formal debut Thursday. The biggest digital currency rose for a third day, trading around $37,500.

G-7 kicks off

Group of Seven leaders
descended on the British coast in Cornwall where they’ve been able to bask under a rare spell of English sun. In their first face-to-face
meeting, Biden and U.K. Prime Minister Boris Johnson were eager to re-establish the special Anglo-American relationship, even though Johnson described the term as cliched. The pair heaped praise on each other and took pains to emphasize their common ground. Under the surface though, simmering tensions related to the U.K.’s split from the European Union threaten to sour the mood at the seaside venue. Friday’s focus will be on the economic recovery and ways out of the pandemic, as the leaders weigh
reallocating $100 billion of potential new International Monetary Fund reserves from rich to poorer nations.

Markets rise

Global stocks extended a record high amid growing confidence inflation will prove transitory. Overnight the MSCI Asia Pacific Index added 0.2% and Japan’s Topix index closed 0.1% lower. In Europe the Stoxx 600 Index had gained 0.4% at 5:56 a.m. S&P 500 futures also pointed to little change at the open, while the 10-year Treasury yield held near 1.43%, its lowest point since early March. Crude oil traded above $70 a barrel.

Coming up… 

It’s a quiet day for data. University of Michigan Consumer Sentiment numbers for June are due at 10:00 a.m., and the latest Baker Hughes rig count is at 1:00 p.m. The G-7 leaders’ summit starts in Cornwall.

What we’ve been reading

Here’s what caught our eye over the weekend. 

And finally, here’s what Katie’s interested in this morning

It’s been a counter-intuitive week in the Treasury market. Benchmark 10-year notes are poised for their biggest weekly gain in a year, with yields sinking to 1.43%. That rally picked up steam even after data showed that the U.S. consumer price index surged 5% from a year earlier, and 0.6% on a monthly basis in May. Both measures beat expectations.

One way to read that would be to point to the huge increases in used vehicles, airfares, hotels, and label May’s numbers as transitory. That’s the view of Guggenheim Investments chief investment Scott Minerd, who tweeted that those jumps “won’t be sustained” as demand cools and production ramps up. Through that lens, maybe it makes sense that yields dropped in the aftermath.

Bloomberg Opinion columnist and Allianz SE chief economic adviser Mohamed El-Erian thinks it’s far more technical. A short squeeze was on display this week in the Treasury market, he told me and Opinion’s Brian Chappatta in a Twitter Spaces on Thursday. Liability-matching flows drove the position unwind, he said.

“Failing to liability-match is a big deal,” El-Erian said. “The more it moved, the more it was going to move.”

Which brings us to the bond market’s sleeping giants: Pensions. Milliman data show that the 100 largest corporate pension plans were almost 100% fully funded in May, up from a funded ratio of 82% in July 2020. Bank of America sees that sparking a “massive rotation” from equities into high-grade debt as pension managers look to lock in gains.

That rotation should support credit spreads in the back-end of the curve, according to Bank of America, and it could help explain why we’ve seen a massive unwind of short positioning in Treasuries as well.

It remains to be seen how long this rally can endure in the face of what’s clearly a hot economy. There’s reason to think it could slow soon, if you’re someone who follows the charts. The iShares 20+ Year Treasury Bond ETF’s 14-day Relative Strength Index is the closest to overbought territory since last July—the following month saw a 5% drop.

Follow Bloomberg’s Katie Greifeld on Twitter at @kgreifeld

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