Swissquote Bank Research Team
Swissquote Bank Ltd
Since the recent US government bonds yield hike of last week (2-year government bond rates reaching above 2%, a 10 years high) and the market excitement that followed, coupled with possible Japanese and European central bank policy tightening, we could wonder whether we might be expecting an imminent US bond market crash in the next couple of days ! All ingredients would be there: a sudden US government bond rate hike increase, equity markets keep going up (hypothesis: the propensity of investors to take further risk for higher returns pushes bondholders to invest into equity markets), the timing of policy tightening can potentially become unpredictable.
From our perspective, Friday January 12th 2018 moves in the bond market were strongly influenced by December US core CPI growth (above expectations at 1.80%), coupled with strong monthly retail sales data (0.4%, on line with consensus) that signify faster-than-expected Fed policy tightening. Looking at the US 10-year and 2-year yields, we remain confident that as long as the yields range around the 3% and 2.50% respectively, the US bond market remains stable. We think that the US bond market conditions should rather be interpreted as positive and indicates that the US economy grows at an active pace. In any case, further rate hikes will expose the US government to higher interest rates, bearing in mind that the US government carries a national debt worth of USD 20 trillion that would remain expensive in the longer term.
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This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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