Fixed income market: the week ahead Fixed income market: the week ahead Fixed income market: the week ahead

Fixed income market: the week ahead

Althea Spinozzi

Head of Fixed Income Strategy

Summary:  The Federal Reserve meeting, stimulus bill talks and PMI data will dictate US Treasuries' performance this week. The market is expecting the Fed to increase its purchases of long-term bonds to slow down the rise in yields. To add pressure to Treasuries could be an unsuccessful stimulus bill and worse than expected PMI figures caused by an acceleration of Covid-19 cases. In Europe, sovereigns will continue to rally as new lockdown measures are imposed in several countries, and the ECB will continue to stimulate the economy in the foreseeable future. In the United Kingdom, as a hard Brexit looks likely, ten-year yields will continue to fall until they test the benchmark bank rate at 0.1%.

Prepare for a busy week ahead. In the US, bond investors will be waiting impatiently for the Fed meeting.  Even if US Treasury yields have been falling to historic lows during the coronavirus pandemic, the US yield curve has been steadily steepening since 2018 until today. The rally in Treasuries has been caused by the central bank cutting the federal funds rate pushing yields lower, especially in the front part of the yield curve. Longer yields followed, but as inflation expectations have been recently rising, they started to point higher while short-term yields are stable. The reflation story lifted 10-year yields from a historic low of 0.5% in July to near 1% as of recent.  The market is looking anxiously at long term-yields rising because they are conscious that if they soar too fast, they might provoke a sell-off in the stock market. During this week's Fed meeting, it's crucial to understand whether the central bank may be looking to expand its bond-buying program to longer maturities in an effort slow down rising yields. Currently, the Fed is purchasing bonds at a pace of $80 billion a month, which concentrates in the front part of the yield curve.

Stimulus bill talks and Markit PMI figures will also be significant. The latter will show whether the labour market has been weakening since Covid-19 cases accelerated. The Fed meeting and PMI figures might cause yields of long-term Treasuries to fall even further.

On Friday, two-year yields touched 0.115%, the lowest since the beginning of August. At the same time, ten-year yields broke below their ascending wedge and closed at 0.89%. If a dovish sentiment prevails this week they might fall near 0.80%.

On Friday, ten-year yields broke the ascending wedge they have been trading since August. Source: Bloomberg.

The European bond market on Friday has been digesting the ECB policy meeting. The rally in European sovereigns resumed, and for the first time in history, Spanish 10-year Bonos closed with a negative yield, adding to the pile of negative-yielding debt which has hit around $18 trillion.

The rally in European sovereigns will continue. Even if Lagarde mentioned that the ECB might not deploy in full the PEPP program, the central bank's economic forecasts painted a difficult few years ahead of the bloc. The economy is going to recover, but slower than expected, and inflation in 2023 is expected to be well below the ECB target rate. Therefore, the ECB will have no other alternative rather than continuing to stimulate the economy. Inevitably, this will push those European rates that remain above positive, below zero.

In the UK, as a hard Brexit looks more and more likely, yields will continue to fall. As per my earlier analysis which you can find here, ten-year Gilts might try the benchmark bank rate at 0.1% in case of a hard Brexit.

Economic calendar:

Monday the 14th of December

  • Japan: Industrial Production
  • China: Foreign Direct Investment (FDI)
  • Eurozone: Industrial Production

Tuesday the 15th of December

  • Australia: RBA meeting minutes
  • China: National Bureau of Statistics (NBS) press conference, Retail sales
  • Switzerland: SECO Economic Forecasts
  • United Kingdom: Claimant Count Change, ILO unemployment rate, average earnings
  • United States: Industrial Production
  • Canada: BOC's Governor Macklem Speech
  • Australia: Westpac Leading Index
  • Japan: Merchandise Trade Balance

Wednesday the 16th of December

  • United Kingdom: Consumer Price Index, Retail Price Index, PPI Core Output, Market Manufacturing PMI, Markit Services PMI, Markit PMI Composite
  • France: Markit Manufacturing PMI, Markit Services PMI, Markit PMI Composite
  • Germany: Market Manufacturing PMI, Markit Services PMI, Markit PMI Composite
  • Eurozone: Market Manufacturing PMI, Markit Services PMI, Markit PMI Composite, Labour Cost
  • Canada: BOC Consumer Price index
  • United States: Retail Sales, Market Manufacturing PMI, Markit Services PMI, Markit PMI Composite, FOMC Economic Projections, FED Interest Rate Decision, FOMC Press Conference
  • Switzerland: Swiss National Bank Quarterly Bulletin'

Thursday the 17th of December

  • Australia: Employment Change, Unemployment Rate
  • Switzerland: SNB Monetary Policy Assessment, SNB Press Conference
  • Eurozone: Consumer Price Index
  • United Kingdom: BOE Monetary Policy Committee, BOE Asset Purchase Facility, Bank Of England Minutes
  • United States: Initial Jobless claims, Covid-19 Vaccine Announcement
  • Japan: National Consumer Price Index

Friday the 18th of December

  • United Kingdom: GFK Consumer Confidence, Retail Sales, Current Account
  • Japan: BOJ Monetary Policy Statement, BOJ Press Conference
  • Germany: Producer Price Index, IFO Business Climate
  • Canada: Retails Sales

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.