Treasury yields are on the rise once again

Bond yields rose for the eighth week running, as investors digested the latest inflation data. With a hot inflation reading, it is increasingly clear that the U.S. central bank has no reason to ease its aggressive interest rate hiking cycle. A further 75 basis point rate hike is being priced in by markets.

The benchmark 10-year U.S. Treasury yield jumped from 3.31% to 3.46% over the week. The yield on the 2-year Treasury, the part of the curve most sensitive to Fed policy, rose 31 basis points to 3.87%, reinforcing the trend of yield curve inversion which is seen as a reliable recession warning.

Similarly, German 10-year yields traded higher (+1.70%, +6 basis points) while the French OAT yield closed at 2.32% (+5 basis points).

Against this gloomy backdrop, investment grade corporate bonds extended their losing streak to seven weeks: -0.79% for the Markit iBoxx Euro Liquid Corporates TR Index (down 12% for the year), and -0.95% for the Bloomberg Barclays Global Aggregate Corporate Bond TR Index in USD, bringing its year-to-date performance to -17.82%. 

Unlike last week, high-yield bonds followed suit, with the Markit iBoxx EUR Liquid High Yield TR Index down 0.62% (-10.92% YTD) and the Markit iBoxx USD Liquid High Yield Capped TR Index down 2.40% (-10.30% YTD). 

Emerging debt fell 1.56% (-17.90% for the year in local currencies - Bloomberg Barclays Emerging Markets TR Index) amid a stronger dollar. The U.S. Dollar Index, which measures the greenback against a basket of six peers, gained momentum at 109.64 (+0.59%), close to the first resistance point around 110.