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:  This week, we might see a consolidation of sovereign bonds worldwide as central banks look to stop their rout. Yet, Treasuries' bearish trend has been established, and we expect the consolidation to be only temporary. In the United States, the Covid-19 stimulus bill, Powell's speech on Thursday and Nonfarm payrolls on Friday will be in the spotlight. Many highlight that if ten-year yields break above 1.65%, we might see another squeeze within Mortgage-Backed Securities holders, pushing yields fast towards 2%. Across the Atlantic, European investors remain in the hands of the European Central Bank. The market will be looking at the latest bond-buying figures today to understand whether the pledge to cap yields is real. In the United Kingdom, Rishi Sunak's budget on Wednesday and Thursday's 10-year Gilt auction might provoke yields to resume their rise.

This week will be all about rates. Despite the selloff in US Treasuries last week looked to be over already by Friday, in the next few weeks yields might continue to rise as the $1.9 trillion Covid-19 package heads to the Senate for approval after being passed by the House of Representative on Saturday. Last week Mortgage-Backed Securities (MBS) holders engaged in convexity hedging triggering a fast selloff in Treasuries pushing yields to the highest level in a year. Many highlight that 1.65% is another key level and that if 10-year yields break above it, there is the probability of another squeeze among MBS. As a consequence, we might see yields rising fast towards 2%.

Besides Biden’s stimulus Bill, it will be important to listen to the various Federal Reserve speakers to understand whether the rise in yields worries some of them. The most important speech of the week will be delivered by Powell himself on Thursday when he will discuss the US Economy. Although so far the Fed didn’t’ blink at the rise in Treasury yields, we believe that if the selloff continues, the central bank will not be able to ignore it any longer. Indeed, while it is not worrying that yields rise amid an economic recovery, it's important they don't precede growth and full employment. We believe that nominal yields are rising too fast, with real yields unequivocally putting pressure on the corporate world.

Source: Bloomberg.

Although last week’s rise in interest rates polarized market attention, we believe that something even more troubling happened: the correlation between Treasury yields and junk bonds returns turned negative, signalling that a selloff in junk credits may be next. Within fixed income, high yield corporate bonds have outperformed other instruments year to date. While junk went up by 0.7% year to date, investment-grade credits fell by 3%. Their performance can be explained by the fact that investors have been buying into junk to create a buffer against rising yields and inflation expectation, which is something that investment-grade bonds cannot provide given the record low yields and their long duration. We believe that if the Federal Reserve doesn’t cap the rise in Treasury yields, risky assets' performance will be at risk. A junk bond selloff would quickly leak to other asset classes such as stocks putting at peril the overall market exactly as we have experienced during 2013 during the Taper Tantrum.

Source: Bloomberg.

Across the Atlantic, the European Central Bank will need to prove its intention to cap the rise in yields by increasing its QE purchases, and we will know that today as the central bank publishes the latest bond-buying figures. The ECB's problem is that, while monetary and fiscal policies go hand in hand in the United States, Europe lacks fiscal help. The money agreed under the Next Generation EU Recovery Plan last year still needs to be disbursed, and another fiscal package will not come about this year as Germany is going through elections. This leaves the ECB alone in supporting and stimulating the European economy. That's why a sustained selloff in European sovereigns might tighten EU financial conditions putting in peril the central bank's efforts. Today ECB’s President Lagarde speaks, and it's imperative to understand whether the central bank is ready to do whatever it takes to rescue the euro area. If her words are not convincing enough, we might be headed to another week of selloff, which might become expensive for countries issuing long-term bonds this week such as Germany, Spain and France. Spain is running the risk to see a choppy 7-, 10- and 15-year government bond auction on Thursday. Bidding metrics for the periphery's long-term bonds have not been consistent since the beginning of the year. If the ECB fails to turn market sentiment by Thursday, bearish sentiment might leak from the primary to the secondary market and provoke even a deeper selloff of sovereigns within the periphery.

In the United Kingdom, the market is waiting for Rishi Sunak’s Budget announcement on Wednesday, which many expect to unveil a GBP 5 billion grant scheme. Such an announcement could push Gilt yields to break above their resistance line at 0.85% that will inevitably see them rising fast towards 1%. The year-to-date rise in yields has been impressive in the UK, with 10-year yields rising by 60 basis points. Despite Bank of England's speakers seem not concerned about the imminent rise in yields as they attribute it to good news from strong growth expectations, we believe that if 10-year Gilts break above 1%, the central bank might need to reconsider its position. The rise in yields has preceded an economic recovery, and Governor Bailey recently explained that economic data for the first quarter of the year would not be encouraging. Besides Sunak's Budget, Thursday's 10-year Gilt auction will be key to setting Gilts' path towards 1%.

Source: Bloomberg.

Economic Calendar

Monday, the 1st of March

  • Australia: TD Securities Inflation
  • China: Caixin Manufacturing PMI
  • Spain: Markit Manufacturing PMI
  • Italy: Markit Manufacturing PMI, Consumer Price Index
  • France: Markit Manufacturing PMI
  • Germany: Markit Manufacturing PMI, Harmonized Index of Consumer Prices
  • Eurozone: Markit Manufacturing PMI, ECB’s De Guindos Speech, ECB’s President Lagarde Speech
  • United Kingdom: Markit Manufacturing PMI
  • United States: Fed’s Williams Speech, Fed’s Brainard Speech, ISM Manufacturing PMI

Tuesday, the 2nd of March

  • Japan: Unemployment Rate
  • Australia: RBA Interest Rate Decision
  • Germany: Retail Sales, Unemployment Rate, 10- and 25 years Linkers Sale
  • Spain: Unemployment Rate
  • Eurozone: Consumer Price Index, ECB’s Panetta Speech
  • Canada: Gross Domestic Product Annualized
  • United States: Fed’s Brainard Speech

Wednesday, the 3rd of March

  • Australia: Gross Domestic Product
  • China: Caixin Services PMI,
  • Spain: Markit Services PMI
  • Italy: Markit Services PMI, Gross Domestic Product
  • France: Markit Services PMI
  • Germany: Markit Services PMI, Markit PMI Composite, German Buba President Weidmann Speech
  • Eurozone: Markit Services PMI, Markit PMI Composite, ECB’s Panetta Speech, ECB’s De Guindos Speech, ECB’s Schnabel Speech
  • United Kingdom: Rishi Sunak’s Budget announcement
  • United States: Markit Services PMI, Markit PMI Composite, ISM Services PMI, ISM Services Employment Index, Fed’s Beige book

Thursday, the 4th of March

  • Australia: Trade Balance, Retail Sales
  • Eurozone: Economic Bulletin, Retail sales, Unemployment Rate
  • Spain: 5-, 7-, 10- and 15-year Nominal Bond Auction, 10-year Linker Bonds
  • France: 10- and 30-year Bond Auction
  • United Kingdom: 10-year Bond Auction
  • United States: Continuing Jon Claims, Nonfarm Productivity, Initial Jobless Claims, Factory Orders, Fed’s Chair Powell Speech

Friday,  the 5th of March

  • Germany: Factory Orders
  • United States: Nonfarm Payrolls, Goods and Services Trade Balance, Average Hourly Earnings, U6 Underemployment Rate, Unemployment Rate

Quarterly Outlook 2024 Q2

2024: The wasted year

01 / 05

  • Macro: It’s all about elections and keeping status quo

    Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

    Read article
  • FX: The rate cut race shifts into high gear

    As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

    Read article
  • Equities: The AI and obesity rally is defying gravity

    Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

    Read article
  • Fixed income: Keep calm, seize the moment

    With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

    Read article
  • Commodities: Is the correction over?

    Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

    Read article


The Saxo 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 is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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 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 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 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 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 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.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo 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 Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning 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. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

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

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 are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.