The US bond starts the week at the edge of 4.80%. The profitability of T-Note accelerates the bullish path in which it has been immersed throughout the month of January, and on Monday morning it moves at 4.794%, a maximum not seen since November 2023. He is not the only one: in general, all the main sovereign debt references are carried away by the sales this Monday, which translate into increases in profitability and a fall in the prices of these securities in the secondary market. The 10-year Spanish bond has exceeded 3.30% for the first time since last July.
This acceleration in bond sales was already noted last Friday, after knowing a powerful data on job creation in the US corresponding to December. The non-agricultural payroll figure – the most analyzed – reached 256,000, compared to the 160,000 expected by the consensus of economists. This strength in the US labor market leaves little room for the Federal Reserve to lower interest rates. In fact, the market does not expect a cut in the price of money until next June. This has caused a significant increase in US Treasury bond yields in recent weeks, which discount these lower expectations of declines. Added to this is the Trump effect, since the policies of the new Administration, particularly regarding tariffs and immigration, could be inflationary.
As we say, the sales trend – and rise in yields – is general to the vast majority of sovereign references. The profitability of Spain’s 10-year debt moves this Monday at 3.31%a level that it had not touched since last July. Its British counterpart, which already reached 2008 highs last week, rises even further, up to 4.88%; the French has risen to 3.47% (highs in October 2023); the Italian is at 3.83% (6-month high) and the German is close to 2.62% (June 2024 high).
The good side of price declines – which penalize investors who already had bonds in their portfolio – is the opportunity they open to buy debt. According to Citigroup, The yield on the 10-year US bond could go to 5%, which would indicate a good time to enterr. “At 5%, the bond would be really attractive,” says Steven Wieting, chief investment strategist and chief economist in the US bank’s wealth management division.
In a commentary this Monday, David Kohl, chief economist at Julius Baer, explains that the December employment report was a positive surprise, driven by “increased hiring in retail, health care, leisure or hospitality; manufacturing was the only sector that showed a drop in employment growth.” Hence, this entity expects “that the Fed’s rate cut cycle is over for now”, due to the “solid US economic outlook and persistent inflation, which require a target federal funds rate of 4.5 % throughout 2025”. Kohl predicts that the performance of Treasury US 10-year bond remains above the federal funds target rate level in 2025: “We have raised our 3- and 12-month forecasts to 4.7% and 4.95%, respectively,” he says..
In the words of Danny Zaid, manager of TwentyFour AM (a boutique by Vontobel): “10-year US Treasuries likely to hit 5% […]. But we believe that for us to see a rally significant in US Treasury bonds (at least in the short term) we would have to see data that points to economic weakness, or a further deterioration in the labor market, and at this time neither of the two conditions exist. The movement in rates, although significant, is for the most part justified given the current economic context,” explains Zaid. His conclusion is that “the narrative of higher returns for now is here to stayand the central bank can afford to be patient until something changes in the economy. “Next month, we will keep an eye on any major revisions, keeping in mind that January may bring with it seasonal factors that may add uncertainty to the numbers.”
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