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:  As we approach the end of the fiscal year, US Treasuries might benefit from higher investors' demand. However, their long-term bearish trend has been set, leaving yields quite volatile. Federal Reserve speakers, US Treasury auctions, Personal Consumption Expenditures (PCE) can trigger another selloff in the bond market, which could push yields to test their resistance level at 1.75%. While investment-grade corporate bonds registered the biggest quarterly loss since 1981, junk remained stable. However, we believe that once ten-year yields hit 2%, investors might start to dump junk bonds, too, making financial conditions sensibly tighter for weaker companies. In Europe, our focus continues to be on the periphery as their competitiveness is undermined by the rise in yields in the United States.

The selloff in US Treasuries is not over yet. However, we might see some consolidation as corporate pension funds allocate capital into bonds before the end of the fiscal year. The communication problem between the Federal Reserve and the bond market leaves US Treasuries extremely volatile, especially if inflation proves to be on the rise. This is why every economic release, auction and Federal Reserve member’s speech this week can be a catalyst for a deeper selloff in Treasuries. Today Powell will speak at the Bank of International Settlements, and he will testify before Congress on Tuesday and Wednesday. Beyond Powell, there are a dozen other Federal Reserve's members speaking this week, which might give clues regarding their feeling concerning inflation and the bond market turmoil.

The market struggles to agree with the Fed's dot plot, which doesn’t see interest rates hikes until 2023. Hence, it takes monetary policy into its hands by dumping Treasuries. The central bank's problem is that if nominal yields rise too much, they might hinder the negative interest rates policy that the Federal Reserve has been committed to since January last year, forcing the Fed’s hand to cap long term yields.

In terms of technical analysis, 10-year Treasuries are trading in a fast area, meaning that either they continue to rise towards 2% or they might test their support line at 1.65%. Bearish and bullish sentiment can arise from any Federal Reserve speaker, Treasury bond auctions and inflation data. The US Treasury will issue 2- and 3-year notes during the next couple of days, but it will be on Thursday that the focus will turn on the 7-year note auction which last month attracted the lowest demand since 2009, with foreign investors’ bids plunging the most since 2014. A repeat of the same could spark even a deeper selloff, with yields rising fast towards the very pivotal level of 2%. This time around, demand could be supported by corporate pension funds allocating capital into bonds before the end of the fiscal year, especially now that US Treasuries offer a more competitive yield than other sovereigns (to learn more, click here).

Source: Bloomberg and Saxo Group.

It’s crucial to understand that although we might be facing a better week for US Treasuries, the bearish trend has been set, and the bond market will continue to be volatile, putting at stake risky assets. It’s nearly impossible to make forecasts about where yields will end up by the end of this year because there is the risk that if the Federal Reserve continues to dismiss the bond market, nominal yields could spike together with inflation expectations provoking serious disruptions.

If the duration event that we are witnessing now intensifies, it can easily pose funding hurdles that the market will pay handsomely. This quarter, US investment-grade credits fell the most since 1981. Their historically high average duration made them more vulnerable to a rise in interest rates than junk bonds. The primary market has been forced to reduce the average maturity of new issuances this quarter pointing to the fact that capital structure is changing profoundly among those sectors that are characterized by above-average duration, such as utilities, telecommunications and technology.  If interest rates continue to rise, there is the risk that the junk credit space will be the next victim. Indeed, many high yield corporate bonds rely on the low cost of funding and a stable market.

Source: Bloomberg and Saxo Group.

The European bond market will continue to focus on US Treasuries this week while more countries are extending and imposing stricter lockdown rules. Germany’s Ifo survey will tell whether business expectations continue to rise or if new lockdown measures start to scare the market. However, the biggest problem in Europe remains the rise in yields in the United States, which are becoming more and more convenient compared to the periphery once hedged against the EUR. Indeed, the US safe-havens offers around 0.85% in yield once hedged against the euro, around the same yield offered by Greece (for more, click here).

This point should be extremely concerning for the ECB because it could trigger another selloff in the periphery, such as the European sovereign crisis. Greek bonds are more at risk of rotation as they are rated junk and mainly held by foreign investors. However, a selloff in Greek sovereigns might leak easily to other countries to the periphery, such as Portugal, which debt is also held largely by foreigners.

In the United Kingdom, data releases will focus on inflation, retail sales, flash PMIs and labour data being released throughout the week. So far, the Bank of England seems to be looking towards the Federal Reserve's same direction anticipating inflation to hit 2% this year as the economy recovers fast amid an efficient vaccination program. The BOE last week said it is committed to keeping rates on hold until the inflation target will be achieved sustainably. Yet the central bank didn't sound concerned regarding the fast rise in Gilt yields, which rose even more exponentially than those of the Treasuries since the beginning of the year. Ten-year Gilts are trading around a resistance level of 0.85%; however, there is the risk that once they break this level, they will rise fast towards 1%, where we believe the BOE will need to pay more attention to their rise as they might start tightening financial conditions.

Source: Bloomberg and Saxo Group.


Economic calendar

Monday, March the 22nd

  • China: PBOC Interest Rate decision
  • Japan: Leading Economic Index
  • United States: Chicago Fed National Activity Index, Fed’s Chair Powell speech, Fed’s Daly speech, Fed’s Quarles speech, Fed’s Bowman speech
  • Germany: Buba President Weidmann Speech

Tuesday, March the 23rd

  • United Kingdom:Claimant Count Change, ILO Unemployment Rate, BOE’s Cunliffe speech, BOE’s Governor Bailey speech
  • United States: New Home Sales, Fed’s Chair Powell testifies before Congress, 2-year Note Auction, Fed’s Brainard and Williams speech
  • Netherland: 10-year bond auction
  • New Zealand: Trade Balance
  • Australia: Commonwealth Bank Service PMI

Wednesday, March the 24th

  • United Kingdom: Retail Prices, Consumer Price Index,PPI Core Output, Markit Manufacturing PMI and Services, BOE Monetary Policy Meeting Minutes
  • Germany: Markit Manufacturing PMI and Services, 10-year Bond Auction
  • Eurozone: Markit Manufacturing PMI and Services, Consumer Confidence
  • United States: Durable Goods Orders, Markit Manufacturing PMI and Services, Fed’s Chair Powell testifies before Congress, Fed’s Williams speech, 5-year Note Auction

Thursday, March the 25th

  • Germany: Gfk Consumer Confidence Survey
  • Switzerland: SNB Interest Rate Decision, SNB Monetary Policy Assessment
  • Eurozone: M3 Money Supply, Economic Bulletin
  • United Kingdom: BOE’s Governor Bailey speech
  • United States: Continuing Jobless Claims, Gross Domestic Product, Core Quarterly PCE, Initial Jobless Claims, Fed’s Clarida speech, Fed’s Williams speech, 7-year Note Auction

Friday, March the 26th

  • Japan: Tokyo Consumer Price Index
  • United Kingdom: Retail Sales
  • Germany: IFO Business Climate, Current Assessment and Expectations
  • United States: February Core PCE, Michigan Consumer Sentiment Index

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

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.