Our fixed income team provide their update of recent market events
US sanctions against two Russian oil giants saw prices spike, as well as putting upward pressure on bond yields. Elsewhere there is optimism that presidents Trump and Xi will find sufficient common ground for a US/China trade deal. Read on for a breakdown of fixed income news across sectors and regions.
Macro/government bonds
The US 10-year Treasury yield finished the week broadly unchanged at 4%, in the face of the conflicting forces of a spike in oil prices and a softer than expected CPI print. The US sanctions on two Russian oil companies (see Chart of the Week) not only caused the oil price to spike higher by around 8%, it also exerted upward pressure on bond yields.
On Friday, softer than expected US inflation data led to a bond market rally. The market is currently pricing in two quarter point rate cuts from the Federal Reserve in October and December. We also had the PMI report for the US. While the economy remains relatively resilient, business confidence in the outlook has deteriorated, with companies worried about the impact of tariffs on costs.
There was, however, increased optimism that presidents Trump and Xi would find sufficient common ground to reach a US/China trade deal when the pair meet at the Asia Pacific Economic Corporation summit in South Korea this week.
Elsewhere, the best performing core market last week was the UK. The yield on the 10-year UK government bond fell 10bps to 4.43%, reflecting a surprise downside print for UK inflation. Core CPI came in at 3.5% for the 12 months to September, contributing to positive market sentiment that the Bank of England could adopt a faster pace to monetary easing.
Staying in the UK, the PMI report continued to highlight a sluggish UK economy, as well as caution from the UK corporate sector towards taking investment and spending decisions in the run up to the UK budget.
The German 10-year yield rose 5bps on the week to 2.63%, largely on the back of accelerating growth in the services sector and expectations of increased issuance.
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