Sign up for free updates on US Treasury bonds and stay informed. Our myFT Daily Digest email will provide you with the latest news on US Treasury bonds every morning. The recent surge in borrowing costs on both sides of the Atlantic reflects the strength of the US economy and concerns about persistent price pressures. A global bond sell-off has caused benchmark US 10-year Treasury yields to reach their highest level since 2007, while UK gilt yields are at their highest since 2008 and French government bond yields are at levels not seen since 2012. This increase in yields is the result of data suggesting that the US economy is stronger than previously thought, leading to the expectation that inflation will take longer to moderate. Consequently, investors are adjusting their expectations for when central banks will be able to cut interest rates.
The US Federal Reserve has warned of “significant upside risk to inflation” in its latest minutes, although some officials are skeptical about the need for further rate rises. This unexpected shift has caught out some investors who believed that rates had peaked and were re-entering the bond market to secure higher yields. Both US and European bond yields are on the rise as investors sell bonds based on the belief that central banks are not considering rate cuts due to a tight labor market and sticky core inflation.
Despite a slight fall on Friday, benchmark US Treasury yields are about 4.23%, 0.27 percentage points higher than at the start of the month. UK 10-year gilt yields have risen by 0.38 percentage points, and German Bund yields have risen by 0.15 percentage points to 2.62%. The surge in yields is fueled by an increase in government bond supply, particularly in the US, where the Treasury department expects to issue a net $1tn worth of bonds between July and September. However, demand from foreign investors, especially Japan and China, seems to be declining.
The relaxation of its yield curve control policy by Japan last month may encourage Japanese investors to reduce their global bond holdings in favor of domestic bonds, which could further push up yields of US and European debt. Additionally, lower trading volumes this month due to many traders being on holiday are causing significant price fluctuations in the bond market.
Economic data that has surpassed expectations in the past few weeks has contributed to the volatility. US retail sales data for July rose by 0.7%, and the Philadelphia Fed’s manufacturing business outlook survey for August reached its highest level since April 2022. Economists at Citigroup argue that sustained higher yields are needed to slow down the economy and reattain the Fed’s 2% target inflation rate.
While US core inflation has cooled slightly to 4.7%, it remains significantly above the Fed’s target. The UK and the eurozone are also dealing with high inflation rates. Strong labor markets are putting pressure on employers to increase prices, making it difficult to quickly return to target inflation rates. Some bond experts predict that long-term yields will stabilize at around 4% over the next one to three years.
Central banks on both sides of the Atlantic have emphasized that their interest rate decisions will be data-dependent. A recent surge in yields is seen as a tightening of financial conditions, which could help central banks in their efforts to control inflationary pressures.
Market predictions currently suggest that the fed funds rate will remain close to the current target rate until the middle of next year. The European Central Bank is expected to deliver one more 0.25-percentage-point rise by the end of the year, bringing the rate to 4%. The Bank of England’s rate is anticipated to peak at 6% by early next year.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
