The event of the week for the fixed income market was the meeting of the European Central Bank (ECB). With Christine Lagarde’s decision to make a new rate cutinvestors opted for purchases that allow the main references in the secondary market to close the last five sessions with a drop in returns. He German bond with ten-year maturity stands at 2.2% returnsix basis points below what was recorded last Monday.
However, it is the debt of peripheral countries that overreacted the most to the 25 basis point drop announced by the ECB, which places the deposit rate at 3.25%. With a yield cut of more than 10 basis points In five days, the Spanish ten-year bond falls again below the 3% return (it stands at 2.906%), the Italian one at 3.4% and the Portuguese ten-year bond offers a yield of 2. 64%.
Shorter-term bonds moved more strongly to the change in monetary policy. As an example, the two-year German bond fell twice as much as the ten-year reference this week to the point that two-year German debt almost reached yields not seen since December 2022. This drop in yields increases the price of bonds. bonds, which may present a new potential opportunity for investors in the shortest maturities, according to the director of fixed income investments at Schroders, Michael Lake. “Short maturities offer a tempting combination of attractive valuations and margin of safety against capital losses,” the expert commented.
However, the European market behaves differently from the rest of the debt market. While in the weekly balance purchases are imposed on the side of the eurozone and the United Kingdom, in Japan and the United States there is a rebound in yields. He Ten-year US bond once again exceeds 4.1% with the Japanese one with the same maturity that is close to 0.96%.
This produces a distortion in the Bloomberg index that replicates a diversified portfolio of investment grade sovereign debt. This index shows losses for the investor due to the price of these bonds since the beginning of the year of 0.3%. But it is not because of the evolution of European debt. It is mainly due to the effect of the Japanese debt. The evolution of Japanese government debt prices would leave losses of more than 7% in 2024.
#Purchases #imposed #Lagarde #German #bond #return