A Difficult Start to the Year for Bond Markets

With a Labor Department report showing U.S. consumer prices increased more than expected in January amid rises in the costs of shelter and healthcare, the week did not allow U.S. bond markets to reduce losses recorded since the start of the year.

Treasury yields jumped for the third straight week. The yield on the U.S. 2-year Government rose 19 basis points to 4.67% while the 10-year Treasury yield gained 11 basis points to 4.28%, which corresponds to a rise of 40 basis points year-to-date.

While the anticipation of future interest rate cuts amongst investors continues to be deferred, it is interesting to note that the reduction in the Fed’s balance sheet has been put on hold for several weeks.

In Europe, the yield of Germany's 10-year Bund added 2 bps over the week (+38 bps year-to-date).

Against this backdrop, the riskiest bond segments have not shined this week.

The IBOXX € Liquid Corporates gained 0.43% over the week (-0.95% YTD). In the U.S., the IBOXX $ Domestic Corporates index edged down 0.11% (-2.05% YTD). High yield bonds proxied by the IBOXX € Liquid High Yield Index edged up 0.21% in Europe (+0.63% YTD) while their American peers lost 0.49% (Markit iBoxx USD Liquid High Yield Capped Index down 0.67% YTD). Lastly, emerging debt in local currencies slid 0.11% for the week bringing its YTD performance to -2.18%. The dollar index finished the week up 0.16% to 104.28.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.