Persistently high interest rates weigh on bond markets
Gov. bonds and Spread
Posted by MoneyController on 10.04.2024
- 1905
- 0 Follow me
Falling government bond prices and rising yields: what is happening in the bond market today?
The fact that central banks are likely to make their first interest rate cut in June seems to have had an impact on the bond market. As Vito Lops points out in 'Sole 24 Ore', bond yields have risen again. On the one hand, this means that the downward trend in yields has been interrupted and, on the other, there has been a downward correction in bond prices.
The longer the duration, the more pronounced these downward corrections. In this respect, Lops reports data on some ETFs linked to US Treasuries: from the beginning of 2024, the losses recorded by funds investing in one- to five-year government bonds amount to 1%, while the downward correction for the fund investing in 20-year US bonds is 8%. It is very useful to compare this data with yields, which have been rising everywhere since the end of 2023, not only in the US but also in Spain, France, Germany and Italy.
Behind this downward correction in the bond market, says Lops, is the fact that the economic and financial scenario is increasingly different from what most market participants expected. The US economy is growing, driven by government spending. The labour market is also robust and this (together with the US government's investment measures) is helping to make inflation more persistent. As a result, the question is now whether the Federal Reserve will cut interest rates in June.
To sum up, we can say that the bond market is undergoing a correction, as the scenario that many expected (in particular the economic slowdown and falling inflation in the US) does not correspond to what the markets are facing today, i.e. a market in which interest rates remain as high as they have been for several years.
Read also
US Treasuries as a bond market benchmark
What are bonds and how do they work?
From the glossary:
