The week concluded with a new turn in the debt market. Sovereign bonds closed on Friday (European session) with a upward adjustment of yields that placed the ten-year United States bond above 4.5% this Friday. In this way, the main reference for the debt market increased its return by 17 basis points in five days and strained the rest of the fixed income in the secondary market. Although the week was less difficult for European securities, the German ten-year bond was also carried away by sales. These bonds registered a profitability greater than 2.35% while Spanish debt with the same maturity remained above 3%.
The latest statements by the president of the United States Federal Reserve, last Thursday, did not say anything new that the market had not already discounted. However, it was confirmation that US monetary policy will take into account the Donald Trump’s victory and its tariff plans that will add pressure to national inflation. “It is very likely that the Fed will lower rates less and/or more slowly than expected until now due to Trump’s inflationary policies,” commented Bankinter.
For the moment, a discount continues new cut of 25 basis points in December (this possibility was erased during Jerome Powell’s cut), although this option would be increasingly less justified based on the evolution of OIS financial contracts (overnight indexed swaps), according to Bloomberg. The same is also observed in the evolution of fixed income, since since Donald Trump’s electoral victory, sales have prevailed to take the yield on the ten-year US bond to its maximum since the end of May of this year.
Another that marked its own milestone this week was the Japanese bond with a maturity of a decade, which reached levels above 1.06% (highs in July of this year). In fact, it is above the 1% limit that conditioned the last Bank of Japan intervention.
This increase in yields implies a fall in bond prices. The widespread selling already causes a conservative investor, with a diversified portfolio of investment grade bonds, I would be losing 3% in the year with sovereign debt, according to the Bloomberg that covers these assets.
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