Fixed income chart pack for December Fixed income chart pack for December Fixed income chart pack for December

Fixed income chart pack for December

Althea Spinozzi

Head of Fixed Income Strategy

Summary:  The long part of the US yield curve remains compressed by Covid distortions. However, the front part continues to advance as the market prepares for more aggressive monetary policies. Corporate bond spreads have widened amid volatility in rates but do not show signs of distress as real yields remain negative. Investors continue to prefer high-yield corporate bonds to reduce their portfolio duration. In Europe, government bond yields have dropped amid omicron as the market expects more lockdowns, thus further accommodative policies. There is the chance that the ECB will disappoint at next week's FOMC meeting adding upward pressure to rates. In the UK, interest rate hikes expectations remain aggressive, opening up for a rally in Gilts if the BOE doesn't deliver a 10bps rate hike at next week's meeting.

US Treasuries

The US yield curve continues to bear flatten as the front part rises amid tighter monetary policies expectations, and the omicron variant keeps yields in check in the long part of the yield curve. This trend will continue until covid fears ease. 

Source: Bloomberg and Saxo Group.

Omicron failed to significantly push back on interest rate hikes expectations, causing short-term US Treasury yields to remain sustained.

As interest rate expectations accelerate, and we approach the end of tapering, the front part of the yield curve will continue to rise. Two-year yields are in an uptrend, and they might rise fast to 1%. 

Source: Bloomberg and Saxo Group.

Similarly, 5-year yields are trading in an uptrend. They will continue to remain vulnerable to rate hike expectations. If the Federal Reserve sounds convincingly hawkish at next week’s FOMC meeting, they might rise fast to 1.50%.

Source: Bloomberg and Saxo Group.

Ten-year yields dropped significantly amid news of omicron. Yet, they are poised to adjust for interest rate hikes expectations. We expect them to continue to soar to 1.70% in the first quarter of 2022, and break above this level as Covid distortions ease.

Source: Bloomberg and Saxo Group.

The US 10-year T-Note seems to be stuck in a range between 130 and 132. There looks to be strong support at 130. (Courtesy of Kim Cramer).

Source: Saxo Group.

Many argue that more aggressive monetary policies will lead to slower growth, pushing long term-yields down. Yet, it’s safe to expect that long-term yields will rise during an hiking interest rate cycle, as it happened historically. In case the market expects slower growth, long-term yields will rise slower than short-term yields, but they will shift higher in any case.

Source: Bloomberg and Saxo Group.

As the Federal Reserve prepares to tighten the economy, real yields will need to soar. Interest rate hikes will drive nominal yields higher and breakeven rates lower, accelerating the rise of real yields. A fast rise in real yields will pose a considerable threat to weaker companies.

Source: Bloomberg and Saxo Group.

US Corporate bonds

Corporate bond spreads have widened due to a rise in rates volatility. It’s interesting to note that investment grade bonds had a sharper correction compared to junk bonds.

Source: Bloomberg and Saxo Group.

The reason why junk bonds' valuations are more resilient compared to investment grade bonds lies on supportive investors’ demand for junk. Indeed, high yield bonds provide a higher yield with a much shorter duration (3.9 years versus 7.6 years). High grade bonds’ duration has increased dramatically in the past couple of years. 

Source: Bloomberg and Saxo Group.

Yet, corporate spreads remain supported by deeply negative real yields. We expect corporate bond spreads to widen dramatically when real yields accelerate their rise, which we believe it will happen as the Federal Reserve begins to hike interest rates. As the chart below shows, the 2013 taper tantrum was all about rising real rates.

Source: Bloomberg and Saxo Group.

European Sovereign yields

German 10-year Bund yields have dropped sharply since the ECB dovish meeting at the end of October. However they bounced back and they are now testing their 100 days moving average. Covid distortions will continue to keep Bund and European sovereign yields in check. Yet, there is the risk that the ECB will not be as dovish at next week’s monetary policy meeting, increasing upside risk for yields. We remain constructive on above 0% Bund yields in 2022.

Source: Bloomberg and Saxo Group.

The EuroBund is moving in a rising trend channel. There is resistance at around 175.10. (Courtesy of Kim Cramer).

Source: Saxo Group.

Gilt yields have dropped sharply following the unexpected decision of the BOE to keep the base rate unchanged in November. However, there is still room for Gilt yields to drop further before resuming their rise. Indeed, the market is still pricing four interest rate hikes in for 2022. If the BOE doesn’t deliver the first 10bps interest rate hike at next week’s monetary policy meeting, we might see 10-year yields dropping to 0.64%. 

Source: Bloomberg and Saxo Group.

As uncertainty surrounding central banks’ tightening paths shake the market, sovereign bonds with a high beta suffer the most. Italian BTP dropped on the news of a new Covid variant as investors expected further restrictions, thus more accommodation. However, high inflation might not enable the ECB to engage in more accommodative monetary policies. Therefore BTPs remain at risk, and we expect yields to continue to rise throughout the first quarter of 2022.

Source: Bloomberg and Saxo Group.

EU Corporate bonds

The yield of European junk and high-grade corporate bonds have risen during the last quarter of the year. Yet, they remain in line with pre-pandemic levels.

Source: Bloomberg and Saxo Group.

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.