US ambitions in Greenland, and the subsequent levying of tariffs on nonsupportive European nations, have dominated headlines. Although the impact on bond markets has so far been limited, investors are wary. Read on for a breakdown of fixed income news across sectors and regions.
Macro/government bonds
There was a bias to higher yields in the US and Japan last week, with 10-year yields rising by 6bps and 9bps respectively. Yields were little changed in the eurozone and UK. Over the weekend, Trump announced a 10% tariff on numerous European countries as a punishment for failing to support US attempts to take over Greenland. Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands and Finland were hit with the levy, which is effective from February and will rise to 25% by June. The impact on bond markets was limited, as market participants price for a negotiated settlement.
In Iran, although the prospect of a collapse in the regime seems to be rising, the prospect of US military action against the country has eased for the time being.
Still in the US, the issue of Federal Reserve (Fed) independence continues to swirl. All three living former Fed chairs and several former Treasury secretaries signed a letter in which they emphasised the importance of Fed independence. The following day, 11 leading central bankers from across the globe did the same. Signatories included Andrew Bailey, governor of the Bank of England, and Christine Lagarde, president of the European Central Bank.
US data showed that core CPI came in 0.2% for December, translating into a year-on-year figure of 2.6%. There was also publication of the Fed’s Beige Book, which pointed to a still resilient economy. While US consumption continues to hold up, there is increasing evidence of a bifurcation between the spending patterns of higher income households and those of increasingly price conscious lower income households.
In Japan, the new prime minister, Sanae Takaichi, announced that she would call a snap election for 8 February. This was viewed as likely to the result in fiscally expansionary policies and tighter monetary policy, which triggered a further rise in Japanese bond yields.
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