The US 10-year Treasury note yield dropped to 4.22%, nearing its lowest level since the end of March, following a successful auction of $13 billion in 20-year US government bonds. Also, retail sales rose by less than expected in May and previous months were revised downward, reinforcing bets on Federal Reserve rate cuts this year. Over half of the market is anticipating a Fed rate cut in September. The bond market in the US will be closed on Wednesday for the Juneteenth holiday.
The yield on the UK 10-year Gilt edged up to 4.07% from 4.05% as traders digest inflation figures and await the Bank of England monetary policy decision. The headline inflation in the UK fell back to the central bank's 2% target in May as expected, and core inflation also eased to 3.5% from 3.9% but services inflation remained sticky and fell less-than-expected to 5.7% from 5.9%. As a result, investors reduced some bets for the BoE's rate cuts this year, specially in August. The first rate reduction remains fully priced by November. The central bank is expected to keep the key bank rate at a 16-year high of 5.25% when it decides on monetary policy on Thursday, though market watchers are watching for any signs of a policy shift. On the political front, recent polls show Labour leading for the upcoming July 4th election, with Prime Minister Rishi Sunak's Conservative Party in second place.
The yield on the Russian 10-year OFZ edged up to above the 15% mark, touching levels not seen in over two years, following the Moscow Exchange's suspension of trading in dollars and euros on Thursday, a response to a new wave of U.S. sanctions aimed at hindering Russia’s ability to sustain its war in Ukraine. Previously, the Central Bank of Russia maintained its key interest rate at 16% and hinted at a potential rate hike in its upcoming meeting. Recent data shows headline inflation at 8.2%, significantly above the CBR’s 4% target, driven by demand outpacing the economy's constrained production capacity due to disrupted supply chains and a labor force crisis. Furthermore, uncertainty surrounding Russia’s energy revenue generation prompted the Finance Ministry to increase the supply of OFZs, which also contributed to the rise in yields.
The yield on the Indian 10-year government bond fell below the 7% threshold, the lowest since touching the two-year low of 6.95% on June 3rd as the favorable growth outlook and prudential fiscal setting for the Indian government increased demand for domestic debt. The combination of limited government spending and robust revenues due to the country’s sharp growth lowered the credit risk associated with Indian government bonds, underscored by the INR 2.1 trillion dividend that the RBI paid the government, which was over twice what was budgeted. Fiscal optimism for New Delhi was further consolidated after Narendra Modi was able to secure a third term with the BJP’s alliance. G-Secs also received support from the strong growth outlook, which stemmed from the 8.2% growth in GDP for FY2024. The favourable backdrop allowed key banks and asset managers worldwide to include rupee-denominated bonds in their funds, also supporting G-Secs with added foreign demand.
China’s 10-year government bond yield fell to around 2.25%, hitting its lowest levels in six weeks as investors reacted to mixed economic data. China’s retail sales increased 3.7% year-on-year in May, accelerating from 2.3% in April and topping expectations of 3%. Meanwhile, industrial production and fixed asset investment rose less than expected last month, while the urban unemployment rate held steady at 5%. Elsewhere, data showed that new home prices in China fell at the quickest pace in more than 9-½-years in May, highlighting ongoing challenges in the country’s property sector. On the monetary policy front, the People’s Bank of China left its medium-term lending facility rate unchanged at 2.5%, as widely expected. Investors now look ahead to the central bank's loan prime rate decisions later this week.
