The yield on the US 10-year Treasury note briefly touched 5% for the first time since 2007 after Fed Chair Powell said policy isn’t too tight right now and that the Fed is proceeding carefully and will decide on the next steps based on incoming data, the evolving outlook, and the balance of risks. Comments at the Economic Club of New York came in line with the message from the FOMC minutes. Remarks from several Fed officials have been mixed about the need of further rate hikes but there seems to be unanimity in their commitment to maintaining borrowing costs at restrictive levels in order to curb inflation. On the data front, initial jobless claims came below forecasts once again but the continuing claims rose for a fourth week. Other economic data released during the week including existing home sales, retail sales, industrial production, housing starts and building permits surprised on the upside, adding to further evidence the US economy remains robust.
The yield on the UK's 10-year Gilt climbed above the 4.6% mark, reaching its highest level since October 3, as data showing that British consumer price inflation held steady in September raised the possibility of a further increase in the Bank of England's interest rates. This contrasts with data from Tuesday that suggests a potential slowdown in the job market. Specifically, UK wages rose less than expected, and job vacancies fell to an over two-year low. On Monday, Chief Economist Huw Pill emphasized that the central bank should not prematurely assume that the battle against high inflation is won, solely because the pace of price growth has slowed in recent months.
The yield on the Indian 10-year government bond rose to the 7.35% mark, approaching the seven-month high of 7.4% touched on October 9th, tracking other credit markets with exposure to the recent downturn in US Treasuries prices as investors continued to monitor the policy outlook for major central banks. Despite the recent slowdown in consumer price growth, policymakers at the Reserve Bank of India continued to warn that inflation poses risks to the upside, warranting a prolonged period of restrictive interest rates. Additionally, the central bank warned that ample liquidity is one of the culprits for overly-loose monetary conditions that prevent inflation from remaining below target, signaling a possible wave of bond selling, and sending the yield on the 10-year G-Sec nearly 15bps higher year-to-date.
China’s 10-year government bond yield rose toward 2.75%, hitting its highest levels in over two months and tracking a rally in global bond yields as stronger-than-expected data in major economies reinforced the higher-for-longer view on interest rates. Solid economic data in China also boosted the country’s economic outlook and reduced the need for further policy easing. China’s economy expanded 4.9% year-on-year in the third quarter, slowing from a 6.3% growth in the previous quarter but exceeding the 4.4% forecast. Retail sales, industrial production and jobs data also came in better than anticipated for September, while house prices edged down. On the monetary policy front, the People’s Bank of China kept its one-year and five-year loan prime rates unchanged at 3.45% and 4.2%, respectively, at its October fixing in a widely expected move as China’s economy showed signs of stabilizing.
Australia’s 10-year government bond yield surged above 4.7%, hitting its highest levels in 12 years and tracking a rally in US bond yields as the American economy’s resilience bolstered the view that the Federal Reserve will keep interest rates elevated for an extended period. Domestically, investors assessed data showing Australia’s unemployment rate unexpectedly fell to 3.6% in September despite pressure from higher borrowing costs. Meanwhile, minutes of the Reserve Bank of Australia’s last meeting showed it considered raising its policy rate in October before deciding to hold it steady at 4.1% due to “not enough new information.” The board noted that inflation remained well above the 2% target and was “expected to do so for some time,” but acknowledged that Australian labor market and output growth may have already peaked.
Germany's 10-year government bond yield extended gains towards the 2.9% threshold, reaching its highest level since October 6th, as stronger-than-expected data reinforced the view that the central banks may keep interest rates elevated for an extended period. US retail sales rose 0.7% from a month earlier in September, following an upwardly revised 0.8% increase in August and far exceeding the market consensus of 0.3%. Earlier, data showed German investor confidence, surpassed expectations by reaching a six-month high of -1.1 in October. It is expected the European Central Bank will maintain interest rates at record highs during their meeting next week. In an interview published on Monday, Chief Economist Philip Lane stressed that there is still considerable ground to cover before any consideration of rate cuts. Last week, the ECB's account of the September meeting indicated that the decision to raise rates was a "close call" due to "significant uncertainty.
Japan’s 10-year government bond yield rose above 0.8%, hitting its highest levels in ten years and tracking a rally in global bond yields as stronger-than-expected data in major economies reinforced the higher-for-longer view on interest rates. JGB yields also surged despite indications from Japanese authorities that they will contain excessive increases in bond yields which aren’t backed by higher inflation expectations. In late September, the Bank of Japan bought 300 billion yen worth of bonds with maturities between 5 and 10 years to bring down yields, and subsequently announced that they will conduct additional bond purchases. JGB yields initially rallied in late July after the central bank loosened its grip on interest rates, allowing the 10-year JGB yield to rise above the 0.5% upper limit, while setting a de facto cap of 1%.
