Market: Government debt rates are rising and reaching multi-year highs

(BFM Bourse) – All bond yields are experiencing a sharp increase, reaching their highest since March or even for several years, depending on the maturity, in Europe and the US.

The central banks will raise their interest rates again and the market is in trouble. All government bond yields – that is, the interest rate on government debt – in developed countries exploded on Thursday, reaching the highest in months or even years.

Shortly before At 17:00, the 10-year US Treasury yield topped 4.064%, its highest level for the year and a high not seen in over 15 years. The 10 rate on gilts, UK debt securities, is at 4.7%, the highest level since 2008. Remember that bond values ​​move in the opposite direction to interest rates.

In the eurozone, the yield on the 10-year German benchmark stood at 2.637%, the highest level since early March. Ditto for the rate of 10 in the bond equivalent to the French Treasury (OAT) at almost 3.2%, again a high level since the beginning of March.

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Freezer “minutes”

As for the two-year US Treasury yield, the maturity most sensitive to changes in monetary policy, it stood at 5.11%, a level not seen since 2006. Outside the US, French yields peaked after two year with more than 3.5% at the highest level in almost 15 years. Same for German (3.33%).

Investors expect further policy rate increases from the major central banks. The US Federal Reserve and the European Central Bank (ECB) have already signaled that they expect hikes at their meetings in July.

These speculations were reinforced by the publication of the “minutes”, that is, the minutes of the latest monetary policy meeting of the Fed in June, where the US central bank had chosen a pause in its tightening.

“You can see in the minutes that this June pause was hotly debated and was not a consensual pause. Perhaps the market is questioning its relevance and wondering if it might not have been better to win a month of intervention capacity from the Fed against inflation. ” , raises Alexandre Baradez, head of market research at IG France, who recalls that “the market is asking questions about the consequences of the tightening of monetary policy on the economy”.

A strong ADP report

The ADP report on US employment, clearly above expectations, supports the trend a little more.

“If an interest rate hike (by the Fed, editor’s note) this month wasn’t already a given month, now probably is. The ADP report isn’t often a great precursor to official jobs numbers, but this is a report you just can’t ignore,” said Oanda’s Craig Erlam.

At the level of the UK “It should be borne in mind that investors’ expectations of future increases from the Bank of England have only become more aggressive in recent days”, notes Deutsche Bank.

In an interview with the BBC on Thursday, Andrew Bailey, the governor of the Bank of England, reiterated that the central bank must act immediately to reduce inflation or risk having to raise interest rates to higher levels, Reuters reported.

Julien Marion – ©2023 BFM Bourse

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