Long-term Treasury Yields Rise Again

Long-term Treasury yields climbed again this week at levels unseen since 2007 for the US 10-year note (up 14 basis points at 4.58%). By contrast, it’s worth noting that the 2-year Treasury yield ended the week at 5.05%, down 6 basis points. The inverted yield curve remains in place, but it now stands at -47 basis points. It is interesting to note that it had reached -106 basis points three months ago. This explains why short-term U.S. government bonds have drawn more investment flows this year compared to long-term papers.

In Europe, the yield on the German 10-year Bund rose from 2.74% to 2.84% while the yield on the French 10-year OAT jumped to 3.40%, up 12 basis points, after topping 3.50%.

Government bond yields pushed the investment grade corporate bond prices lower. The IBOXX € Liquid Corporates index fell 0.42%. In the US, the IBOXX $ Domestic Corporates index fell 1.26%. High-yield bonds limited the damage, losing only 0.31% in Europe (IBOXX € Liquid High Yield Index) and 0.35% in the US (Markit iBoxx USD Liquid High Yield Capped Index). Lastly, emerging debt in local currencies plunged 2.50%, hit by a strong greenback. On Wednesday, the dollar reached a 10-month peak against a group of major currencies (dollar index above 106), driving the euro to its lowest level in nearly nine months and keeping the yen within the intervention range. This happened as investors were speculating that the U.S. economy could outshine its rivals in the context of elevated interest rates. Gold was also hurt by the strengthening dollar (-4.10% for the week).

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