Our fixed income team provide their update of recent market events
Geopolitics continues to dominate with the welcome news of a ceasefire between Israel and Hamas. This, as well as ongoing tariff threats from the US, had a feedthrough impact on commodity prices. Read on for a breakdown of fixed income news across sectors and regions.
Macro/government bonds
Yields fell across core markets last week, especially on Friday, amid rising geopolitical and tariff uncertainty. The US 10-year fell 9bps to 4.03% and the German 10-year by 5bps to 2.64%.
On Friday morning, news broke that the coalition in Japan between the Liberal Democratic Party (LDP) and Komeito had collapsed. Although the break-up of this coalition complicates the path to power for the LDP’s newly elected leader, Sonae Takaichi, she is likely to make it through in the second round of voting for the post of prime minister. However, the consequent lack of a majority means the LDP will have to negotiate each bill on a case-by-case basis. The news exerted downward pressure on Japanese government bond yields, which spilled into global bond markets.
In the US, Donald Trump also provided a trigger for lower yields. After China announced new export controls on rare earths, Trump announced that tariffs on Chinese imports would rise from 30% to 130%. We await further developments to this story.
In France, elevated political uncertainty caused the 10-year yield spread of French bonds over German bonds to reach +0.86% – its highest level since the eurozone debt crisis. The French prime minister, Sébastien Lecornu, resigned at the start of the week, although Macron asked him to continue negotiating with the other parties in order to help identify a path forward. This is likely to involve some dilution of pension reforms. In an unexpected turn, Lecornu was then reappointed prime minister late on Friday.
With the US shutdown continuing, there was little in the way of market-moving data. Minutes from the Federal Reserve’s September meeting confirmed an increased focus on downside risks to the US labour market.
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Portfolio activity We increased our short positions in Japan in global mandates.