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
Last week was positive for government bonds as yields fell across core markets: the US 10-year finished 2bps lower at 4%, the German 10-year was 6bps lower at 2.58%, and the UK 14bps lower at 4.53%.
The backdrop for lower yields in the US was continuing affirmation of a softening labour market. The Federal Reserve (Fed) published its Beige Book, which pointed to a ‘low fire, low hire’ economy, and we also heard from several senior policy makers at the Fed who made the case for looser monetary policy to combat a weaker labour market.
The other trigger for lower government bond yields was a ‘flight to quality’ scare. This came as news emerged of write-downs at two regional banks, Zions and Western Alliance Bancorp, on loans to the Cantor Group, which invests in distressed debt. This followed bankruptcies at Tricolor and First Brands, raising concerns over a broadening credit crisis. JP Morgan CEO, Jamie Dimon, quipped that ‘when you can see one cockroach, there’s probably more’.
UK gilts performed strongly as UK unemployment rose higher than expected to 4.8%, suggesting wage increases might start to soften, and that the Bank of England might have scope to cut rates.
UK chancellor, Rachel Reeves, spoke at the IMF, stating that she would rebuild fiscal headroom through a mix of tax rises and spending cuts. This was greeted positively by market participants who have also been attracted to the gilt market by higher yields.
France saw S&P cut its rating in an unscheduled move on Friday, from AA- to A+, citing the country’s rising debt burden, sluggish fiscal consolidation and political instability. The impact on French government bond yields was relatively muted. This occurred in a week in which Sébastien Lecornu once again became prime minister of France. The support of the socialists came at the price of effectively scrapping pension reform.
Interested in learning more?
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