Our fixed income team provide their update of recent market events
Is 21st century crypto akin to 17th century Holland? Are we seeing the madness of digital crowds? The Bitcoin price could suggest so. Elsewhere, government bond yields are tracking down in anticipation of further monetary policy easing. Read on for a breakdown of fixed income news across sectors and regions.
Macro/government bonds
Last week, two-year bond yields in the US and the UK declined by 10bps to 3.51% and 7bps to 3.78% respectively, in anticipation of further monetary policy easing. There was little change in two-year eurozone bond yields, reflecting the view that the policy rate might already be at neutral.
A trigger for the US bond rally was the September jobs report. Although the US economy created 119,000 net new jobs in September, there were significant downward revisions to the jobs data for August and July, while unemployment rose to 4.4% – its highest level in four years.
In addition, New York Federal Reserve president, John Williams, made the case for a cut in rates due to labour market softness. US Federal Reserve governor Chris Waller also argued that the market was underestimating the degree of downturn in the labour market. The market shifted the probability of a December rate cut from 47% to 75%.
In the UK, gilt yields edged lower on weaker economic data. UK inflation came in at 3.6% in the year to October, surprising to the downside, while retail sales fell more than 1% in October. The PMI report for the UK pointed to stalling economic growth, accelerating job losses and deteriorating household and business confidence linked to uncertainty surrounding the upcoming budget. The probability of a December rate cut rose from 76% to 88%.
In Japan, the new prime minister, Sanae Takaichi, approved a circa US$140 billion stimulus package, the objective of which will be to push down inflation and raise growth. The PMI report for Japan highlighted the continuing risk of inflation amid rising input and labour costs. The market continues to expect tighter monetary policy by the end of Q1.
Positioning The global rates desk increased their short position in Japan.
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