Summary: Despite the recent bond rally, we find that the uptrend in yields is still intact. Inflation and interest rate expectations are driving pricing in the bond market, causing a bear flattening of the yield curve in the US. In Europe, sovereigns carrying a high beta remain vulnerable to the hawkish stance of central banks. In the UK, rate hike expectations are far more aggressive than in the US, hinting at a possible rally in Gilts if the BOE remains dovish during December's monetary policy meeting. The inevitable truth is that yields will be soaring worldwide, posing a threat to risky assets.
Ten-year yields are fluctuating between 1.40% and 1.70%, within their decennial downtrend.
Ten year yields have resumed their rise following yesterday’s strong inflation numbers. The Recent 10-year and 30-year US Treasury auctions highlighted that investors demand higher yields to take on duration risk amid rising inflation and a less accommodative Federal Reserve. We remain supportive of higher yields by year-end.
Long-term US Treasuries have gained the most in the past six months. TLT:xnas rose 8.34%. IEF:xnas, which includes US Treasuries with 7 to 10 year maturities, rose 0.62%. The belly of the yield curve, IEI:xnas, plunged 1.25%. The front part of the yield curve up to 3 years, SHY:xnas, fell -0.59%.