US Treasury Yields on the Rise Again

The Federal Open Market Committee is “not confident” that it has tightened policy to a “sufficiently restrictive stance” needed to bring inflation back to the Fed's 2% target, Powell said on Thursday, derailing recent hopes that the period of rate hikes was over.

However, some Fed officials have somewhat softened these hawkish comments. Thomas Barkin and Raphael Bostic conveyed apprehension about the prospects of an economic slowdown at a casual discussion in New Orleans, despite recent sturdy growth figures. This could be a sign that the influence of previous rate increases has not yet fully permeated the US economy. Bostic, recognised for his more cautious policy views, also posited that the Fed policy adequately curtails inflation.

The yield on the 10-year Treasury yield gained 8 basis points from 4.57% to 4.65% while the 2-year yield was up 22 basis points from 4.84% to 5.06%.

In Europe, the 10-year German bund yield rose 7 basis points from 2.65% to 2.72%. Similarly, the yield on the French 10-year OAT was up 6 basis points from 3.24% to 3.30%. In September 2023, industrial producer prices rose by 0.5% in the eurozone and by 0.6% in the EU, compared with August 2023, according to estimates from Eurostat, the statistical office of the European Union.

In the UK, the 10-year Gilt yield was up 4 basis points to 4.33%. The Bank of England’s chief economist, Huw Pill, said that the central bank may be willing to consider interest rate cuts in the middle of next year.

In Asia, the Reserve Bank of Australia (RBA) increased its cash rate by 25 basis points to 4.35%, its highest level since the end of 2011, attributing this decision to recent data that pointed towards a consistent risk of high inflation. Furthermore, RBA Governor Michele Bullock stated that the necessity for additional monetary policy tightening will be determined by data and an evolving risk assessment, with the goal of bringing inflation back on target in a reasonable timeframe. This marks a shift from the October decision, which suggested more tightening would be on the horizon. Market players interpreted this as the potential end of the current cycle of rate hikes. The 10-Year government bond lost 10 basis points from 4.74% to 4.64% accordingly.

Against this backdrop, the IBOXX € Liquid Corporates index slid 0.20% for the week. In the U.S., the IBOXX $ Domestic Corporates index was down 0.26%. High yield bonds were mixed with a gain of 0.19% in Europe (IBOXX € Liquid High Yield Index) and a loss of 0.54% in the U.S. (Markit iBoxx USD Liquid High Yield Capped Index). Emerging debt in local currencies remained virtually unchanged (+0.01%).

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