November gives way to the last month of the year with the cut in the profitability of most sovereign bonds in the secondary market. The US debt reflects the smallest of the falls, but this is explained by the presidential elections this month that ended with the Donald Trump’s Republican victory and with investors’ projection that there will be a few months with more inflation than expected before the start of the last quarter of the year. Thus, the ten-year US bond offers a profitability of 4.26% at the end of November (with hardly any activity due to the Thanksgiving holiday at the weekly closing) with which it erases the effect caused by learning the name of the new president of the United States of America.
The US sovereign debt securities This month they achieved returns of almost 4.5%, understanding that the new Republican policies will bring with them a rebound in inflation within and outside the US borders. However, the market has already digested much of the new context in which they will arrive more interest rate cuts by the United States Federal Reserve, although in 2025 they will be less than expected by investors during the election campaign.
As an example, the recent increase in consumer spending in the US, which will bring more pressure to prices, it barely had an impact on the fixed income market. “L“Investors are more aware of what is happening in the US, in relation to the new presidency of Donald Trump and its macroeconomic effects on growth, than to the price data, which are assumed to be essentially linked,” commented Pedro del Pozo, director of Mutual financial investments.
The photograph at the monthly close in the European fixed income market is different. European debt securities were dragged down by the anticipated electoral advance in Germany and by the elections themselves in the United States. However, investors’ risk aversion is greater in the US market. Compared to the 12 basis points that the US bond cuts in November, the German bond gives way 25 basis points in the same period to 2.15% of profitability.
For its part, Spanish debt maturing in a decade is moving away from the 3% yield. These titles fell almost 25 basis points while Italian securities fell 20 basis points to register a return of 3.38%.
In this context of high volatility, several investment firms point out the attractiveness of the fixed income market. Firms like Diaphanum consider that there are good conditions to make trading in the current context due to the change in the price of bonds that are taking place and that will arrive in 2025, with the drop in interest rates that is expected on both sides of the Atlantic and increases in the case of Japan. “The fixed income yields are relatively high compared to recent years, offering an attractive entry point into this asset class. Therefore, we expect positive total returns, driven by the tailwind of lower rates and lower yields, commented the head of fixed income in Abu Dhabi, Jonathan Mondillo.
Le Pen triggers the risk premium in France
If ten-year European bonds cut their yield by more than 25 points in the month of November, French bonds cut the same at a slower rate. The motion of censure with which Le Pen could overthrow the French government maintains tension over sovereign debt. Ten-year securities stand at 2.99% which means being 15 basis points below the value shown in the secondary market at the beginning of the year.
The difference with the rest of Europe can also be seen in the risk premium. The more than 85 basis points of separation between the German and French bonds placed this premium at the highest level since 2012, with the euro zone crisis that shook the pillars of the European Union. The political uncertainty in France is compounded by derives from the national deficit that the market views with concern. And the French bond has increased its risk aversion by more than 40 points since the start of the year, while the German bond has increased its risk aversion by more than 10 basis points and the Spanish bond has even cut it by 10 basis points. For the first time in history, the yield of the French sovereign bond is higher than that of the Greek bond. That is, it costs Greece less to borrow money from the market than it does France.
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