The strength of the United States economy has cooled expectations that new interest rate cuts will be implemented by the Federal Reserve (Fed) and has tightened the rope in the fixed income market with Treasury bonds at 10 years – whose returns many experts expect to reach 5% – without being very clear which direction to take.
The job creation data in the largest economy on the planet – 256,000 positions in the last month – and weaker underlying inflation than expected, have, in any case, offered a certain halo of hope to investors that the Fed can advance from September to June the first rate cut of this year.
However, the yields of the American ‘Treasury’ shot up in the middle of the week until reaching 4.8%, a 14-month high, and then relaxed when the CPI data was known and fell to around 4.6%, its lowest level since last January 3 after the member of the Fed Board of Governors, Christopher Waller, has assured that between three and four rate cuts are still possible in the year if the environment US macroeconomic weakens.
In Europe, the evolution of the curve was similar for the German bund yields, which closed with their first weekly fall since the beginning of December 2024, conditioned by the market situation on the other side of the Atlantic. Meanwhile, the profitability of the two-year German bond, closely linked to the rate expectations of the European Central Bank (ECB), fell again after the inflation data in Germany to 2.22%, in line with estimates. The market now expects the ECB’s deposit facility rate to exceed 2% in December 2025.
Thus, in the Spanish market, there has been movement in the auction of three- and nine-month Treasury Bills. On this occasion, the longer-term ones have surprised by stopping their fall and managing to rise in the midst of monetary uncertainty in Europe. Specifically, the Public Treasury awarded 2,540 million euros this past Tuesday, of which 1,725.7 million euros were in nine-month bills at a marginal interest of 2.495%, 0.111 points more than in the auction a month ago. . In the case of the three-month issue, another 814.36 million euros have been placed with a marginal yield of 2.516%, similar to that registered in February 2023.
On the other hand, the increase in the profitability of gilts British from the beginning of the week has finally faded after an unexpected drop in retail sales in the United Kingdom in December which, added to the rest of the battery of references, predicts an environment of economic slowdown for the European country and open the door for the Bank of England to accelerate the pace with a rate cut at its meeting on February 6.
In this context, the Labor Government of Keir Starmer is in the spotlight due to the uncertainty created around its budget. and compliance with fiscal rules that the market seems complicated without new tax increases or reductions in public spending.
The secondary market has also been paying attention to Japanese sovereign debt in recent days after the 40-year Japanese bond rose to offer a yield higher than 2.75%, a figure never seen before, given the expectations that The Bank of Japan may have to be more restrictive in the coming months.
The body headed by Kazuo Udea meets next week. A priori, It is discounted that on January 24 the institution will adjust its rates upwards with an increase of 15 basis points
“Given the high valuations and the current economic and geopolitical uncertainty, we believe that it makes sense to maintain a higher average credit rating than usual and control the duration of credit spreads,” they explain from TwentyFour AM (Vontobel) to add that the message for fixed income investors is clear: “Keep calm and carry on.”
For the moment, investors expect that there may be more volatility in the market over the coming months after Donald Trump takes power this coming Monday and the foreseeable measures he may take, especially in trade matters against China and the European Union.
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