Treasury Yields Invert After the Hamas Attack on Israel

After over a month of continuous rise, the yields on government bonds plunged this week amid rising geopolitical tensions in the Middle East and not-so-hawkish comments from U.S. Federal Reserve officials. Fed Governor Christophe Waller said that “financial markets are tightening up and they are going to do some of the work for us," alluding to the rise in the 10-year Treasury yield. He also highlighted recent progress on inflation, confirming that if the trend continues, "we are pretty much back to our target."

The yield on the 30-year Treasury bond lost 18 basis points over the week from 4.94% to 4.76%. The 10-year Treasury yield was down 17 basis points from 4.80% to 4.63% while the U.S. 3-month Treasury Bill rate remained virtually unchanged at 5.495%.

In Europe, the 10-year German bund yield fell from 2.88% to 2.74%. Similarly, the yield on the French 10-year OAT eased 11 basis points to 3.37%.

The pullback in Treasury bond yields triggered a renewed interest in Investment Grade bonds. The IBOXX € Liquid Corporates gained 0.87% for the week snapping its five-week losing streak. In the U.S., the IBOXX $ Domestic Corporates index was up 0.69%. High yield bonds followed suit, with a gain of 0.44% in Europe (IBOXX € Liquid High Yield Index) and 0.67% in the U.S. (Markit iBoxx USD Liquid High Yield Capped Index). Lastly, emerging debt in local currencies rebounded strongly, up 1.96% after losing 6% over the last five weeks.

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