The benchmark US 10-year Treasury yeild spiked to a 25-month high of 1.9% on Friday after nonfarm payrolls largely exceeded expectations in January. The US economy added 467 thousand jobs in the first month of the year, compared with market forecasts of a 150 thousand increase, mostly in the leisure & hospitality, business services, retail trade, and transportation & warehousing sectors, despite soaring omicron infections. The latest reading added even more pressure on the Fed to start reducing stimulus and fueled bets of a 50 bps rate hike in March amid the highest inflationary pressure in four decades.
UK 10-year bond soared to 1.37%, the highest since December of 2018 after the BoE delivered another interest rate hike as expected but nearly half of policymakers voted for an even bigger rate increase. The Bank of England Governor said "We have not raised interest rates today because the economy is roaring away. An increase in Bank Rate is necessary because it is unlikely that inflation will return to target without it". UK inflation soared to 30-year highs in December. Money markets now expect the central bank to raise the bank rate by a total of 1.5% this year.
10-year JGB rallied to 0.19%, a level not seen in six years when the Bank of Japan started its negative interest rate policy. BoJ’s Governor continued to rule out policy changes in the near future; more market participants are betting that the Japanese central bank won’t be able to ignore the global trend in monetary policy for much longer. Currently, the BoJ’s goal is to keep yields within 0.25% range of zero, made possible through debt purchases in the secondary market.
Australian 10-year government retreated to a three-week low of 1.86%, as a risk-off sentiment more than offset any support from RBA Governor Lowe’s concession that interest rates could be raised this year, if the economy continued to surprise with its strength. Earlier, policymakers announced the end of the AUD 275 billion bond-buying program on February 10th.
The yield on Germany's benchmark Bund extended a rally to 0.19%, the highest since March 2019. Money markets now bet the ECB will raise rates by 40bps this year instead of a 30bps increase before the February monetary policy decision.
OFZ treasury bond decreased to 9.3% from the near six-year high of 9.8% hit on January 26th as military tensions have showed no signs of aggravation. Kremlin spokesman Dmitry Peskov signaled Moscow was not closing the door on diplomacy after the US rejected Russia’s demands over security arrangements in Europe. Still, investors remain cautious with Russian assets, as volatility due to sanction threats and geopolitical tension led the Ministry of Finance to cancel OFZ bond auctions for the second consecutive week. Meanwhile, Bank of Russia Governor Elvira Nabiullina said global pressures driving inflation represent a change in trends and continue to rise in the foreseeable future. Russian consumer inflation was held at 8.4% during December, despite aggressive rate hikes in 2021, erasing previous expectations that the Russian policy rate would ease through 2022.
Indian 10 year Government bond yield climbed close to 6.9%, the highest since July of 2019 after the government in its annual budget announced the issuing of a record amount of bonds, including sovereign green bonds starting from April. To make things worse, the annual budget lacked announcements regarding inclusion of the nation’s debt into global bond indexes or allowing overseas trading of Indian bonds. This comes at a time when RBI is widely expected to unwind monetary stimulus in line with the major global central banks and investors await next week’s RBI monetary policy meeting outcome for further clues on the timing of rate hikes
Canadian 10-year government bond traded around 1.75%, after hitting a near one-week high of 1.792% on February 2nd, the BoC during its last monetary policy decision dashed some investors' expectations after leaving the interest rate steady. The central bank, however, signaled a rise in interest rates will happen soon, money markets expect the first hike in March and at least five in total this year. Also, Canada’s jobs report for January, on February 4th, could provide further clues on the domestic economic recovery and, consequently, for the next steps of BoC.
Italian 10-year BTP soared to 1.6%, the highest since May of 2020. The central bank confirmed decisions from December and will reduce bond purchases until the end of the PEPP in March. Meanwhile, Italy’s parliamentary budget office said it expects the Italian economy to expand by 3.9% in 2022, well below the entity’s previous forecast of 4.7% in September, mainly due to pandemic related restrictions implemented in the start of the year.
French 10-year OAT yeild extended its rise to 0.6%, the highest in over two years. The central bank confirmed decisions from December and will reduce bond purchases until the end of the PEPP in March. In the meantime, the Bank of England hiked its key Bank Rate by 25bps to 0.5%, as expected, and voted to reduce the stock of UK government bond purchases. Meanwhile, France’s government budget deficit shrank to EUR 171 billion in 2021 from EUR 178 billion the previous year.