Global bond market rally shows no sign of abating

Remarks from Federal Reserve Chair Jerome Powell signaling a slowdown in the pace of tightening as early as December pushed Treasury yields lower and provided a fresh directional impetus to the non-yielding gold (+2.39% around the $1,795/Oz level). The 10-year Treasury yield fell from 3.69% to 3.51% this week. Similarly, the 2-year yield lost steam, shedding 19 basis points from 4.47% to 4.28%.

On the Eurozone front, annual inflation slowed in November for the first time in seventeen months (10% estimated, vs.10.6% in October). Yet ECB President Christine Lagarde recently told the European Parliament that inflation has not peaked and risks are rising higher than expected. European bond markets shrugged off her worries. The yield on the German 10-Year Bund plunged again for the fifth week in a row (down 12 basis points at 1.86%). The French 10-Year OAT yield followed suit, losing 13 basis points (2.30%).

All the bond segments turned north in the wake of Powell’s speech. Investment grade corporate bond prices were up 0.91% in Europe (IBOXX € Liquid Corporates index down 11.23% YTD) and up 1.58% in the US (IBOXX Ishares $ Investment Grade Corporate Bond Index down 15.40% YTD).

High-yield bonds gained 0.44% in Europe (IBOXX € Liquid High Yield Index down 8.53% YTD) and 0.61% in the US(Markit iBoxx USD Liquid High Yield Capped Index down 7.32% YTD).

Emerging debt in local currencies exhibited the best performance over the week (up 2.07%, down 15.12% year-to-date). With six positive weeks in a row, this asset class climbed almost 8% in November, its best month since 1998.