The week ended with a new turning point in the debt market. Sovereign bonds closed on Friday (European session) with a upward adjustment of yields which placed the ten-year US bond above 4.5% this Friday. In this way, the main benchmark of the debt market increased its yield by 17 basis points in five days and put a strain on the rest of the fixed income securities in the secondary market. Even if the week was less difficult for European stocks, the German ten-year bond was also carried away by the sales. These bonds recorded a profitability greater than 2.35% while Spanish debt of the same maturity remained above 3%.
The latest statements from the chairman of the American Federal Reserve last Thursday did not say anything new that the market has not already priced in. However, this confirms that American monetary policy will take into account the Donald Trump’s victory and its tariff plans that will add pressure to national inflation. “It is very likely that the Fed will cut rates less and/or more slowly than expected so far due to Trump’s inflationary policies,” Bankinter commented.
For the moment, a discount continues further drop of 25 basis points in December (this possibility was erased during Jerome Powell’s cut), even if this option would be less and less justified depending on the evolution of the OIS’s financial contracts (overnight indexed swaps), according to Bloomberg. The same thing is also observed in the evolution of fixed income securities, since since the electoral victory of Donald Trump, sales have prevailed to bring the yield of the ten-year American bond to its maximum since the end of May of this year.
Another one that marked its own milestone this week was the decade-long Japanese bond, which reached levels above 1.06% (highs from July this year). In fact, it is higher than the 1% limit which conditioned the last Bank of Japan intervention.
This rise in yields implies a fall in bond prices. Widespread selling is already causing a conservative investor, with a diversified portfolio of investment grade bonds, I would lose 3% in the year with sovereign debt, according to the Bloomberg which covers these assets.
