Facts kill history. Or, in this case, the absence of data from China kills the story of secondary market purchases of sovereign debt. THE Chinese authorities defrauded investors when it came to supporting the recovery plan which would wake up the economy of the Asian giant and revitalize its financial market. But what boosted the stock market and brought buying to the debt market deflated after the country’s week-long holiday. From now on, sovereign bonds They offer less than 0.2% profits for the year with the difference in bond prices. And not only does this erase more than 2 points of profit in less than ten sessions, but it threatens to bring losses for the most conservative investors over the whole of 2024.
Several aspects lead to losses exceeding 2.1% in a diversified sovereign debt portfolio in October. In addition to Chinese news, the conflict in the Middle East worries investors. The war in Ukraine still remains at the forefront of concerns. global geopolitical crisis while the polls do not break the technical tie between Kamala Harris and Donald Trump.
To all this is added the evolution of macroeconomic data in the United States. The country’s latest jobs report beat market expectations by reaching 254,000 nonfarm payrolls in September, compared to 150,000 expected by consensus, which moderated the unemployment rate to 4.1%. “The data shows a resilient labor market and thus confirms our expectation that the next reduction by the US Federal Reserve (Fed) will probably only be 25 basis points,” they commented from Renta 4.
The Spanish investment bank’s opinion is not at odds with market sentiment. For most of the last month, and following the 50 point downward adjustment announced at the last Fed meeting, it was speculated that the Federal Reserve might lower its monetary price benchmark from 50 to an additional 75 basis points in 2024. It is now doubtful whether a 50 basis point adjustment could take place by the end of the year, although this would remain the most likely option depending on the price evolution. OIS exchangesaccording to Bloomberg. This moderates the hope placed in the adjustment of the monetary policy of the United States which would close 2025 with the interest rate at 3.5%: 150 points below the current level.
Thus, the evolution of the previous ones in September in the United States holds the key to stopping the fall in bond prices or, conversely, increase the sale of debt on the secondary market seen so far in October. The market consensus which reflects Bloomberg expects year-on-year growth of 2.3%. In other words, it would decrease by two tenths compared to the previous month’s figure and would be at its lowest level since March 2021, when the US Federal Reserve had not yet started the restrictive adjustment of its monetary policy.
As for underlying inflation, which does not take into account the evolution of energy prices or that of perishable goods, it would remain stuck at 3.2% over the last two months. The good news at this point is that if China does not recover from the ineffectiveness of the measures proposed by the country’s authorities, its fuel demand will not increase. pressure on oil prices globallycentral banks would therefore not have to worry as much about the evolution of the possibility of a further increase in inflation on the energy side.
The example is the benchmark of the sovereign debt market, the ten-year American bond. The profitability of these securities rose above 4%, which means reaching levels not seen for more than two months. If an investor had purchased these securities on October 1, today I would record losses greater than 3%. But this is not a phenomenon concentrated solely on the American debt market.
By geography, the sovereign debt of the main world powers has fallen in price since October 1. While on average, the US public debt shows losses of 1.2%German rises to 2.3% and Spanish or French exceeds 2%. Indeed, Spanish and French ten-year bonds are once again showing yields above 3% on the secondary market. Although, thanks to the currency effect, Japanese bonds lost the most money in October, reaching -3.75%, which implies a loss of more than 6.4% for the entire the year with Japanese sovereign debt, according to the data. collected by Bloomberg.
