Treasury Yields Stabilize after their Plunge Last Week

Government bond yields, which had rapidly retreated last week amid hopes the Fed has finished its rate hike cycle, changed little over this holiday-truncated week. The U.S .10-year Treasury yield gained only 3 basis points to 4.47% from 4.44% while the 2-year yield was up 6 basis points to 4.96% from 4.90%. European bond markets followed the same trend, with the 10-year German bund yield up 5 basis points week-over-week to 2.64% from 2.59% and the yield on the French 10-year OAT up 4 basis points to 3.20% from 3.16%. The yield on the 10-year Italian Government bond gained 3 basis points to 4.40% from 4.37%.

Against this backdrop, the riskiest bond segments caught their breath after their sharp rebound last week.

The IBOXX € Liquid Corporates lost 0.40% for the week. In the U.S., the IBOXX $ Domestic Corporates index was up 0.42%.

High-yield bonds gained 0.45% in Europe (IBOXX € Liquid High Yield Index) and 0.48% in the U.S. (Markit iBoxx USD Liquid High Yield Capped Index). The price of protection against default of U.S. high-yield continued to decrease significantly. ETFs invested in high-yield bonds saw substantial inflows this month (+$11.4 billion) and this week (+$1 billion), in contrast to ETFs invested in government bonds (outflows of $870 million this week, inflows of $1.8 billion this month).

Lastly, emerging debt in local currencies was flat (down 0.04%).

The dollar index, a gauge of the greenback's value against six major currencies, weakened again, reaching a three-month low at 103.42 (-0.42% over the week).

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