| 26 February 2024, Monday |

Bond yields hit fresh 1-month low as taper bets recede

On Wednesday, global stock prices hovered at all-time highs, while US bond yields fell to their lowest levels in a month, as investors bet the Federal Reserve will take a long time to reduce its economic stimulus.

The focus is on Thursday’s release of US consumer pricing data and a European Central Bank meeting for more hints about when officials would begin to withdraw support for Europe’s economy, which was handed out in the aftermath of the COVID-19 crisis.

MSCI’s all-country world index recently stood at 716.42, up from an intraday high of 718.19 on Tuesday, with advances in Europe leading the way.

European stocks were 0.1% lower, with Britain’s FTSE down 0.5%.

In Asia, the MSCI’s broadest index of Asia-Pacific shares outside Japan ticked down 0.3% and Japan’s Nikkei average shed 0.4%.

In the United States, Nasdaq futures were 0.2% firmer and S&P 500 futures up 0.1%.

The 10-year U.S. debt yield, on the other hand, hit a fresh month low for the second day running, reaching 1.504% and down a quarter of a percentage point from a 14-month peak hit in March.

Germany’s 10-year Bund yield , which is closely correlated with U.S. Treasuries, extended Tuesday’s drop to fall to -0.240%, the lowest since May 7 as euro area investors continued to price in a dovish outcome to the ECB policy meeting on Thursday.

“As the recovery in the job market is contained, any discussion at the Fed on tapering is unlikely to gain momentum, even if it starts soon,” said Naokazu Koshimizu, senior rates strategist at Nomura Securities.

“As a result, those who bet on the yield curve steepening are unwinding their holdings, while some investors are now purchasing to earn carry.”

Despite mounting evidence of a labor shortage, U.S. payroll statistics released last Friday showed hiring did not expand as quickly as economists had predicted.

Many economists believe the Federal Reserve would need further evidence of solid employment growth before considering tapering.

The Federal Reserve of the United States has stated that any increases in inflation this quarter will be temporary and will not jeopardize price stability, which is one of the central bank’s major missions.

Thursday’s U.S. consumer price data is expected to show the overall annual inflation rate rose to 4.7% and core inflation increased to 3.4%.

While those readings will be well above the Fed’s inflation target of 2%, many economists expect the inflation rate to ease in coming months, allowing the Fed to wait before taking any tapering measures.

Yet some investors remain wary.

“Nothing that we see in tomorrow’s report can prove or disprove any of the theories around the future path for inflation but I suspect that the market isn’t entirely believing of the Fed’s on-hold forever message,” said James Athey, investment director at Aberdeen Standard Investments.

“I therefore see potential for a higher print to push real yields and shorter dated yields higher thus flattening the curve and boosting the dollar. This might not be a great environment for risky assets.”


On the back of rising commodity prices, China’s producer price index surged 9.0 percent from a year ago, the largest in over 12 years.

Consumer prices, on the other hand, rose more slowly than projected, easing concerns. While China’s central bank is gradually reducing pandemic-related stimulus, the country’s senior officials have pledged to prevent any abrupt policy changes and keep borrowing prices low.

The Chinese yuan increased marginally to 6.3945 per dollar, after rallying to a three-year high last week, fueled in part by speculation Beijing may prefer a stronger yuan to combat inflationary pressure.

Other currencies hardly budged. The U.S. dollar index was parked at 90.077.

The euro was steady at $1.2179, while the dollar held at 109.47 yen .

Deutsche Bank’s Currency Volatility Index hit its lowest level since February 2020 on Tuesday, and sank even further on Wednesday.

Greece followed Italy with a bond offering, opening books on Wednesday for a 10-year issuance, as European bond markets remained tranquil.

Oil prices remained stable after US Secretary of State Antony Blinken stated that even if the US and Iran negotiate a nuclear deal, hundreds of US sanctions on Tehran would remain in place.

On Tuesday, oil futures in the United States closed above $70 a barrel for the first time since October 2018, and were last trading at $70.40, up 0.5 percent.

Brent futures climbed 0.5 percent to $72.56, after reaching their highest level since May 20, 2019.

  • Reuters