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:  Although the market is focusing on the rise of nominal US Treasury yields, we believe that the recent increase in US real rates is more alarming, and it is pointing to the fact that inflation expectations linger while the cost of capital is rising. This week, it will be critical to understanding whether inflationary forces will increase with nominal yields, pushing real yields lower and reestablishing the reflation trade. Thus, the Personal Consumer Expenditure data on Friday and developments on the Fiscal stimulus package will be in the spotlight. On the back of US Treasury yields rising, European sovereign yields are rising too. Lagarde's speech this afternoon will therefore be crucial to understand whether the European Central Banks is comfortable with rising yields or might need to ease the economy further in order to slow down this trens. In the meantime, violent protest in Spain might lead to the Catalan independence movement's resurgence, provoking investors to reassess their risk in the periphery.

This week the rise in US Treasury yields will continue to be in focus. This morning 10-year Treasury yields hit one year high at 1.39% as Australian bonds were falling and commodity and crude prices were rising. Ten-year yields continue to trade in the middle of the 1.2% - 1.5% fast area, which was produced last February as yields were quickly dropping in light of the Covid pandemic.

In only one month, 10-year Treasury yields rose more than 30 basis points, the highest since the 2016 US election. At the same time, we are witnessing a divergence between bond and stock market volatility, pointing out that a selloff in equities might be lagging. As yields continue to rise, more pressure will be applied on risky assets building up for even a more substantial selloff.

Source: Bloomberg.

A rise in US real yields poses a threat to risky assets

We believe there are conditions for yields to rise fast towards the 1.5% level, where they will find strong resistance. Tomorrow, Powell will deliver the semi-annual monetary policy report to the Senate Banking Committee, and it is crucial to understand whether the Federal Reserve is going to let yields rise despite inflation expectations linger. Indeed something alarming is happening: while Treasury yields are rising, real rates are rising with them. It means we might be facing an unexpected rise in capital cost rather than rising inflation, posing an even more significant threat to risky assets. 

Source: Bloomberg.

Therefore, it becomes crucial to understand whether inflation pressures are growing, which is a question that may be answered on Friday with the release of the Personal Consumption Expenditures (PCE). The Federal Reserve prefers the PCE over the Consumer Price Index (CPI) because it measures the change in the price of goods and services consumed by all households. The CPI focuses on the change in the out of pocket expenditures from households. Economists are forecasting it to be around 1.4%, while it recorded 1.5% in December.

Although we don’t expect the 7-year note auction on Thursday to be particularly telling of market sentiment, it may give some clues on investors’ Treasury appetite amid rising yields.

Will the European Central Bank let European sovereign yields rise?

Across the Atlantic, a key focus is whether the rise in US Treasury yields will continue to provoke a selloff in European sovereign bonds. Since the beginning of February, European sovereign yields moved up by more than 20 basis points. As they continue to rise together with US yields, they will become a headache for the European Central Bank. Although European sovereigns continue to trade at historic low yield levels, if they rise too fast, they might tighten the bloc's economic conditions. Therefore, the ECB might need to intervene again to ease the economy reverting this trend. Lagarde's speech this afternoon is crucial in understanding how the ECB views the rise in yields and whether more monetary stimulus might be expected.

The Ifo Business Climates and Expectations data released today and the GfK consumer confidence data released on Thursday will also dictate sentiment in European sovereigns. The question is whether the bloc's biggest economy is entering into a recovery despite being in a second lockdown since December. Last year, Germany's GDP contracted by 5%, a record since the Second War World.

Troubles in paradise for the periphery?

A potential anti-establishment threat in the periphery seemed to have been put at rest since Mario Draghi entered Italian politics. However, in the past few days, we have seen some troubling events happening in Spain. We believe that in Barcelona, violent protests against the rapper Pablo Hasel's incarceration might lead to a resurgence of the Catalan independence movement. Although at the core of the protest, there is a debate over free speech in Spain, the fact that issues occur in Catalonia, a region that has seen to obtain independence from Madrid, gives an opportunity to "idependistas" to advance their agenda. If that was the case, we might see investors starting to reassess risk in the periphery, starting from Spanish Bonos but leaking to the periphery as a whole. It is key to monitor the Bonos-Bund spread in this environment as any unexpected widening might leak to Portuguese and Greeks Bonds. In this scenario, Italy will remain resilient thanks to the honeymoon provoked by Mario Draghi's entrance into Italian politics.

Source: Bloomberg.

Economic Calendar

Monday, the 22nd of February

  • China: PBoC Interest Rate Decision
  • Germany: IFO Business Climates and Expectations
  • United Kingdom: UK Prime Minister Boris Johnson Speech
  • United States: Chicago Fed National Activity Index, Fed’s Bowman Speech
  • Eurozone: ECB’s President Lagarde Speech

Tuesday, the 23rd of February

  • New Zealand: Retail Sales
  • United Kingdom: Claimant Count Rate, ILO Unemployment Rate, Average Earnings Including Bonus, to Sell 2050 Bonds
  • Eurozone: Consumer Price Index
  • United States: Housing Price Index, Consumer Confidence, 2-year Note Auction, Powell To Deliver Semi-Annual Monetary Policy Report to the Senate Banking Committee

Wednesday, the 24th of February

  • New Zealand: RBNZ Rate Statement and Interest Rate Decision
  • Germany: Gross Domestic Product, to Sell 10-year Bunds
  • Switzerland: ZEW Survey Expectations
  • United States: New Homes Sales

Thursday, the 25th of February

  • Japan: Leading Economic Index
  • Eurozone: EU Leaders Summit, M3 Money Supply, Services Sentiment, Consumer Confidence, Industrial Confidence
  • Germany: GfK Consumer Confidence
  • Italy: 5-year and 10-year Bond auctions
  • United States: Durable Goods, Core Personal Consumption Expenditures, Continuing Jobless Claims, Gross Domestic Product, Durable Goods Orders, Non-Defense Capital Goods Orders, Fed’s Williams Speech, US to Sell 7-year Notes

Friday, the 24th of February

  • New Zealand: Trade Balance
  • Japan: Tokyo CPI, Retail Trade, Industrial Production
  • Eurozone: EU Leaders Summit
  • Switzerland: Gross Domestic Product, KOF Leading Indicator
  • United States: Core Personal Consumption Expenditure, Personal Income, Personal Spending


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992