Bond markets remain calm

The U.S. GDP increased at an annual rate of 2.9% in Q4 2022, lower than the previous quarter but above the consensus estimate of 2.6%. Yields on U.S. Treasuries slightly increased along the curve following the report. 

The benchmark 10- year T-note yield edged up 3 bps to 3.51% while the 2-year yield gained 1 basis point from 4.19% to 4.20%. Over the last four weeks, the Federal Reserve has been letting $81 billion worth of assets roll off its balance sheet, reducing the money supply and the availability of credit in the financial system. That might prompt businesses to delay any new investments, including hiring. For the record, the U.S. central bank has already allowed its balance sheet to shrink by $500 billion from the peak observed in mid-April 2022, to $8.47 trillion.

In Europe, the yield on the German 10-year Bund rose 6 basis points to 2.24% while the French OAT yield with the same maturity closed at 2.71% (up 10 basis points). In Japan, the BOJ's dogged defense of yield curve control seems to be working with 10-year yields holding below the 0.50% ceiling (up 8 basis points at 0.485%).

Corporate bonds were mixed. Investment grade corporate bond prices were down 0.15% in Europe (IBOXX € Liquid Corporates index) and up 0.24% in the U.S. (IBOXX iShares $ Investment Grade Corporate Bond Index). High-yield bonds notched a fourth week of gains in Europe (IBOXX € Liquid High Yield Index up +0.22%). They added 0.29% in the U.S. (Markit iBoxx USD Liquid High Yield Capped Index). Emerging debt in local currencies turned positive with a gain of 0.61% as the greenback continued to weaken against most currencies. 

Gold prices were little changed at $1,929.40/Oz (+0.06%). The yellow metal reached its highest level since April.