EUROPE BOND YEILD ROSE WHERAS US 10-YR TREASURY STEDIED
The yield on the US 10-year Treasury note touched 3.59%, the highest since April of 2011, as the 2-day FOMC meeting kicks off. The Fed is widely expected to deliver another 75bps rate hike while bets of a full point increase have scaled back. Investors will also keep a close eye on the so-called dot plot for projections on where rates may go later this year and next year. Meanwhile, the yield on 2-year note topped 3.98%, the highest since November of 2007 and the 30-year one passed 3.5%, the highest level since April 2014. On Monday, the yield curve between two-year and 10-year notes inverted as far as negative 48 basis points. An inversion in this part of the yield curve is usually seen as an indicator that a recession will follow in one to two years.
Britain’s 10-year Gilt yield extended gains towards 3.3%, the highest level since July 2011, as the Bank of England could hike interest rates by as much as 75 bps this week to curb stubbornly high inflation. Data showed recently the UK core inflation rate accelerated in August to the highest since 1992, while headline inflation remained well above policymakers' 2% target. Elsewhere, British finance minister Kwasi Kwarteng is due to deliver more details on the size of the government's energy support package on Friday.
The yield on the German 10-year Bund rose past the 1.9% level, the highest since December of 2013 and tracking surging bond yields worldwide as major central banks are set to extend their aggressive rate-hiking paths in efforts to control surging inflation. The Federal Reserve, Bank of England, and Swiss National Bank are among the larger names to set to tighten policy after the Swedish Riksbank surprised markets and raised their key rate by a full percentage point. Meanwhile, European Central Bank chief economist Lane said that high demand in the Euro Area’s economy is contributing to inflation, adding that interest rates could continue to be increased until 2023. On top of that, ECB Vice-President de Guindos stated that the slowdown in growth will not be enough to solely reduce inflation to healthy levels, adding to the recent emphasis on the sharp rate hikes to come.
Italy’s 10-year government bond yield consolidated above 4.1%, closing in on its highest level since December 2013, as worsening economic conditions in the heavily indebted country dented investors’ appetite for government debt. The World Bank and IMF have already slashed growth forecasts in some major economies, with tightening financial conditions and an ongoing energy crisis in Europe threatening the region’s economic trajectory. At around 150%, Italy’s public debt-to-GDP ratio is now the highest in that country’s history, which, along with anemic economic growth and political uncertainty, raised concerns about a sovereign-debt crisis.
The yield on the French 10-year OAT rose past the 2.4% mark, the highest since September of 2013 as investors braced for a series of expected rate hikes by the major central banks. The Federal Reserve is set to raise its funds rate by 75bps for the third consecutive decision, and policymakers signaled that borrowing costs would remain restrictive for a prolonged time until price growth stabilizes at a healthy level. The ECB is also set continue hiking rates until next year, as chief economist Lane stated that consumer demand is also a contributor to inflation. In its last meeting, the ECB raised its three main interest rates by 75bps and increased inflation projections to an average of 8.1% for 2022 and 5.5% in 2023.
