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Bond Yield

The yield on the benchmark 10-year Treasury note was around 1.5% on Friday, after touching a 3-month high of 1.56% early in the week, amid growing expectations that the Federal Reserve will start tapering in November and hike rates next year. Yields have been soaring from a low of 1.29% reached last week, after the central bank signalled during its latest meeting that stimulus could start being reduced in November and interest rates could rise as soon as next year, while cutting growth forecasts and hiking inflation projections for this year. Meanwhile, Federal Reserve Chairman Jerome Powell said at the European Central Bank Forum that supply chain issues could cause inflation to last longer than the Fed had previously thought.

Germany's benchmark Bund yield stood at -0.2%, not far from a recent three-month peak of -0.17%, as investors continued to digest a hawkish shift among major central banks including the US Federal Reserve and the Bank of England. Elsewhere, ECB President Lagarde promised patience before policy tightening, as the bloc's bank see current price increases as temporary. On the political front, Germany's Social Democratic Party is likely to seek an alliance with the Greens and the liberal Free Democrats to secure a majority in parliament and form a government.

The yield on UK 10-year government bond touched 1% for the first time since May 2019, on expectations major central banks might start tightening monetary policy soon. Bank of England Governor Andrew Bailey said on Monday interest rates could rise as early as this year, even before the current bond-buying program expires if necessary, due to inflationary pressure. The central bank left monetary policy unchanged last week but said the case for policy tightening appeared to gain some momentum while it nudged up its forecast for inflation at the end of the year to over 4%, more than twice its target rate.

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