The yield on the US 10-year Treasury note advanced past the 4.47% mark, rebounding from the two-month low of 4.42% from before the Thanksgiving break as the latest economic data painted a mixed picture of the US economy and left ambiguity on the Fed’s urgency to loosen financial conditions. Fresh PMI figures showed that private sector activity expanded for the tenth consecutive month in November, while lower unemployment claims from the latest release pushed back against the softening momentum in the labor market. Still, a set of cool inflation data pinned bets that the FOMC should opt for lower interest rates by the second quarter of 2024, according to Fed funds futures. Yesterday, Eurozone PMIs topped estimates and showed a smaller contraction in both manufacturing and services activity, which together with the Germany suspension on the borrowing limit pushed government bond yields higher. US bond markets will close early on Friday.
The yield on the UK's 10-year Gilt continued its climb towards 4.3%, distancing itself from a recent six-month low of 4%, as investors processed hawkish remarks by a Bank of England policymaker, stronger-than-expected flash PMI data and consumer morale, and forecast of higher government debt issuance. BoE Chief Economist Huw Pill stressed the central bank's need to stand firm in combating inflation, asserting that it cannot afford to ease its tight monetary policy. Simultaneously, the latest PMI survey indicated the stabilization of the UK's private sector activity in November, surpassing market forecasts and concluding a three-month contraction period. British consumer confidence improved more than expected in November. Elsewhere, the UK Treasury announced a smaller-than-anticipated reduction in its bond sales target for the 2023-24 fiscal year, aligning with Chancellor Jeremy Hunt's proposal of a £20 billion tax cut as the centerpiece of his Autumn Statement.
Japan’s 10-year government bond yield rose above 0.75%, rebounding from over two-month lows after recent data showed inflationary pressures remain in the economy. The headline inflation rate accelerated to 3.3% in October, the highest since July, from 3% in September. Also, the core inflation rate also edged up to 2.9% from a 13-month low of 2.8% in September, posting above the Bank of Japan's 2% target for the 19th straight month. Earlier in November, the 10-year JGB yield nearly touched 1% as the central bank made further adjustments to its yield curve control policy. The BOJ maintained the 10-year JGB yield target at around 0% but re-defined 1% as a loose "upper bound" rather than a rigid cap and removed a pledge to defend the level with offers to buy an unlimited amount of bonds. The BOJ also revised its inflation outlook upwards for the fiscal years 2023, 2024 and 2025, anticipating that underlying CPI inflation will see a gradual rise toward the 2% price stability target.
Australia’s 10-year government bond yield rose above 4.5%, rebounding further from over one-month lows as Reserve Bank of Australia Governor Michele Bullock warned that domestic demand has been contributing increasingly to inflation, requiring a “substantial” response from interest rates. Markets now see a 60% chance of another rate hike to 4.6% next year, up from 40% prior. Earlier in November, the RBA raised the cash rate by 25 basis points to 4.35% as inflation proved more persistent than anticipated a few months ago. On the data front, Australian manufacturing and services activities contracted further in November due to deteriorating demand conditions. Externally, investors continued to assess the outlook for Federal Reserve monetary policy amid mixed economic data in the US.
Germany's 10-year government bond yield extended gains above 2.6%, moving further away from a more than two-month low of 2.516% reached on November 22nd, as news that Germany intends to suspend debt limits for the fourth consecutive year raised concerns about increased borrowing within the bloc. Simultaneously, the latest ECB meeting minutes revealed policymakers' insistence on maintaining the possibility of a further rate hike, even if additional tightening wasn't their primary scenario. ECB Robert Holzmann reiterated that another rate hike was possible, after his colleague Pierre Wunsch warned about "too optimistic" bets on future cuts. Finally, the latest PMI survey showed that German private sector activity contracted at a milder pace in November, with both the services and manufacturing sectors displaying slower contraction rates during this period. Data released on Friday showed business morale in Europe's largest economy improved less than expected in November.
The yield on the Indian 10-year government approached 7.3% in late November, after touching a six-week low of 7.19% on November 17th, as traders continue to assess the monetary policy outlook. Domestically, investors await a decision on the inclusion of Indian bonds on the Bloomberg Global Aggregate and the Emerging Market Local Currency indexes by the end of the month, which could boost foreign inflows. In September, JPMorgan added the bonds to its emerging market index. Meanwhile, lower retail inflation eased concerns of upside risks to consumer prices repeatedly flagged by the Reserve Bank of India. Inflation in India fell to 4.9%, within the Indian central bank’s target of 2 percentage points away from 4%.
