November gives way to the last month of the year with the decline in profitability of most sovereign bonds on the secondary market. U.S. debt reflects the smallest of declines, but that’s because of this month’s presidential elections, which ended in Donald Trump’s Republican victory and with investors projecting that there will be a few months of higher-than-expected inflation before the final quarter of the year begins. Thus, the ten-year American bond offers a profitability of 4.26% at the end of November (with practically no activity due to the weekly closing Thanksgiving holiday) with which it erases the effect caused by learning the name of the new President of the United States of America.
THE US sovereign debt securities This month, they have returned nearly 4.5%, knowing that new Republican policies will lead to a rebound in inflation inside and outside America’s borders. However, the market has already digested much of the new context in which they will arrive. more interest rate cuts by the American Federal Reserve, even if in 2025 they will be lower than those expected by investors during the electoral campaign.
As an example, the recent increase in consumer spending In the United States, which will lead to increased pricing pressure, this has had virtually no impact on the fixed income market. “L“Investors are more aware of what is happening in the United States, in relation to the new presidency of Donald Trump and its macroeconomic effects on growth, than with regard to price data, which is supposed to be essentially related”, commented Pedro del Pozo, director of mutual financial investments.
The situation at the monthly close on the European bond market is different. European debt securities were penalized by the expected electoral progress in Germany and by the elections themselves in the United States. However, investors’ risk aversion is stronger in the American market. Compared to the 12 basis points reduced by the US bond in November, the German bond yields 25 basis points over the same period at 2.15% profitability.
For its part, Spanish debt maturing in a decade is moving away from the 3% yield. These securities fell almost 25 basis points while Italian securities fell 20 basis points to record a return of 3.38%.
In this context of high volatility, several investment companies highlight the attractiveness of the bond market. Companies like Diaphanum believe that there are good conditions to achieve trade in the current context due to the evolution of bond prices which is taking place and which will arrive in 2025, with the drop in interest rates expected on both sides of the Atlantic and increases in the case of Japan. “THE fixed income yields are relatively high compared to recent years, providing an attractive entry point into this asset class. Therefore, we expect positive total returns, driven by the tailwind of falling rates and yields, commented Head of Fixed Income in Abu Dhabi, Jonathan Mondillo.
Le Pen triggers the risk premium in France
If ten-year European bonds reduced their yield by more than 25 points in November, French bonds fell similarly at a slower pace. The motion of censure with which Le Pen could overthrow the French government fuels tensions over sovereign debt. Ten-year securities amount to 2.99% which means being 15 basis points below the value displayed on the secondary market at the start of the year.
The difference with the rest of Europe can also be seen in the risk premium. The spread of more than 85 basis points between German and French bonds puts this premium at the highest level since 2012, with the eurozone crisis shaking the pillars of the European Union. Political uncertainty in France is aggravated by arises from the national deficit which the market views with concern. And the French bond has increased its risk aversion by more than 40 basis points since the start of the year, while the German bond has increased its risk aversion by more than 10 basis points and the Spanish bond even reduced it by 10 basis points. For the first time in history, the yield on the French sovereign bond is higher than that on the Greek bond. In other words, it costs less for Greece to borrow money on the market than for France.
