GLOBAL BOND MARKETS
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THEMES AFFECTING Bonds
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Bonds as related to other asset classes
Bond prices and yields often drive price movements in currencies and other asset classes. In this section, we aim to explain how these movements are analyzed and traded by our dedicated contributors and in-house analysts.
A bond yield is the return an investor gets on a bond. Contrary to many other assets, bond prices and bond yields are inversely related. When the price of a bond increases, the yield decreases. When the price of a bond decreases, the yield increases. Thus, a so-called rally in the bond market means that yields decreased, while a bond sell-off means that yields increased.
It is important to know the underlying dynamic of why a bond's yield is rising or falling. This movement can be based on interest rate expectations or market sentiment, such as uncertainty, which triggers a ‘flight to safety’ to bonds, traditionally considered less risky compared to stocks.
The change in interest rates, either the target rate or market rates, is important because it makes stocks or bonds become more attractive. When this happens, prices tend to trend as money flows from one vehicle to the other until the new relationship is adequately reflected in prices.
Bonds and stocks are in constant competition for investor money, and less so commodities. These, particularly Gold, usually trend in the opposite direction of bond prices (falling commodity prices usually lead to higher bond prices, and vice versa). Therefore, commodities generally trend in the same direction as interest rates.
US Treasuries
If you trade USD-based or USD-quoted currency pairs, it is crucial to monitor the United States (US) bond market, as movements in Treasury yields impact the US Dollar. Treasury yields’ movements are often driven by comments from Federal Reserve (Fed) officials, so staying updated on news coming from US monetary authorities is essential. US stocks usually get a boost from rising bond prices (falling Treasury yields), especially in inflationary periods. But if they don't, then it's worth looking for market sentiment and identifying reasons for the cautious stance in bond markets. US stock prices can also rise alongside falling bond prices (rising Treasury yields) during deflationary periods. In such cases, both stock prices and interest rates rise, driving global demand for the US Dollar.
UK Gilts
Global bond prices tend to move in synchrony, but occasionally, a country's bond market may experience sharper movements compared to others. Sometimes this volatility is related to currency fluctuations. The Gilt, the 10-year benchmark in the United Kingdom (UK) fixed-income market, typically has a positive correlation to the Pound Sterling (GBP). A decoupling between these markets can serve as an early alert that an intermarket relationship has shifted. Changes in foreign exchange prices can overwhelm relative return calculations for international investors buying Gilts. Stripping out the currency component, UK Gilts should still provide returns to investors. Otherwise, other bond markets such as US Treasuries, may become attractive. Additionally, a prolonged trend in rising energy prices is a factor to consider as it will affect inflation expectations and therefore the Bank of England's (BOE) monetary policy.
Latest Latest Bonds & Interest Rates Analysis
Editors' picks
EUR/USD hovers below 1.1600, awaits Fed Minutes
EUR/USD flat lines after three days of losses, trading below 1.1600 in the European trading hours on Wednesday. The pair tracks the subdued price action in the US Dollar. Traders turn cautious and opt to stay on the sidelines ahead of the Minutes of the Fed's October monetary policy meeting.
GBP/USD stays depressed below 1.3150 after UK CPI inflation data
GBP/USD keeps its downbeat tone intact below 1.3150 in European trading on Wednesday. The UK annual Consumer Price Index (CPI) inflation declined to 3.6% in October, as expected, fanning expectations of a BoE rate cut in December. The focus now shifts to the mid-tier US data and Fed Minutes.
Japanese Yen sticks to modest gains amid safe-haven flow; lacks follow-through
The Japanese Yen sticks to modest intraday recovery gains against a softer US Dollar, though it lacks follow-through and remains close to a nine-month low touched the previous day. Concerns about the US economy keep the USD bulls on the defensive and weigh on investors' sentiment, which is seen as a key factor underpinning the JPY's safe-haven status
Gold climbs to $4,100 neighborhood; eyes weekly high ahead of FOMC minutes
Gold builds on the previous day's recovery from levels just below the $4,000 psychological mark, or a one-and-a-half-week low, and gains positive traction for the second straight day. The momentum lifts the bullion to the top end of its weekly range, with bulls now awaiting a sustained move beyond the $4,100 round figure before positioning for further gains as the focus remains on FOMC minutes.
WTI drifts lower to near $60.50 as US crude inventories rise, sanction risks in focus
West Texas Intermediate, the US crude oil benchmark, is trading around $60.50 during the Asian trading hours on Tuesday. The WTI edges lower amid a rise in US crude inventories. Traders brace for the release of the US Energy Information Administration crude oil stockpiles report later on Wednesday.