GLOBAL BOND MARKETS


US: Annual core CPI remains steady at 1.2% in June vs. 1.1% expected


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THEMES AFFECTING Bonds



Dow Jones Utilities Average - Daily Chart

Dow Jones Global Utilities Average - Daily Chart

Bonds as related to other asset classes

Bond prices and bond yields are many times the drivers behind price movements in currencies and other asset classes. In this section, we aim to explain how those movements are being perceived and traded by our dedicated contributors and in-house analysts.

Utilities are big borrowers and their profits are enhanced by lower interest costs. Conversely, the utility average tends to decline when investors expect rising interest rates. Because of this interest-rate sensitivity, the Utilities Average is regarded by some as a leading indicator for the stock market as a whole.

Utilities are part of our Risk-On/Off indicators you can find by clicking here.

Bond prices and bond yields trend in opposite directions. This is important for understanding most of the analysis and news published on this page.

It's also important to know the underlying dynamic on why a bond's yield is rising or falling: it can be based on interest rate expectations or it can be based on market sentiment -uncertainty- and a "flight to safety" to bonds which are traditionally considered less risky.

The rate of change of interest rates, either the target rate or market rates, is important because this causes either stocks or bonds become more attractive. When this happens prices will tend to trend as money flows from one vehicle to the other until the new relationship is adequantely reflected in prices.

Bonds and stocks are always competing for investor money, and less so commodities. These usually trend in opposite direction of bond prices (falling commodity prices usually produce higher bond prices, vice versa); therefore, commodities would trend in the same direction as interest rates.

US Treasuries explained

If you are trading USD based or quoted pairs, watch the US bond market since a movement in Treasury yields impacts the US dollar. The driver of many movements in Treasury yields are partly driven by comments from Fed officials, so pay close attention to any news coming from US monetary authorities. US stocks usually get a boost from rising bond prices (falling Treasury yields), specially in inflationary times. But if they don't, then it's worth looking for market sentiment and reasons why the equity markets appear to be taking a more cautious stance. US stocks prices can also rise with falling Treasury prices (with rising yields) during a deflationary environment. In this case stocks and interest rates rise together which spurs global demand for the US Dollar.

UK Gilts explained

Global bond prices tend to move in synchrony. But there are moments when a country's bond market experiences a sharper movement than other bonds markets. Sometimes it may be a currency movement: The Gilt is the 10-year benchmark in the UK fixed income market. It's correlation to the Sterling is usually positive and decoupling between both markets serves as an early alert that some Intermarket relationship has changed. Changes in foreign exchange prices can overwhelm relative return calculations for international investors buying Gilts as an investment. When stripped out the currency component, UK Gilts should still provide some return to investors otherwise other bond markets, Treasuries for instance, may become attractive.
It is also true that a prolonged trend in energy prices is also a factor to consider as it will affect inflation expectations and thereby BOE's monetary policies.

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Latest Bonds & Interest Rates Analysis


Latest Latest Bonds & Interest Rates Analysis

Editors' picks

EUR/USD pulls back from one-month high

EUR/USD has backed off from one-month highs reached during the early Asian trading hours, possibly tracking signs of nervousness in some of the Asian markets. Risk assets remain vulnerable to Sino-US tensions despite the coronavirus vaccine news.

EUR/USD News

When are the UK CPIs and how could they affect GBP/USD?

GBP/USD eases from intraday top of 1.2587 while defying the previous two-day losing streak. The pair’s recent gains could be attributed to the increasing hopes of further stimulus from the UK government as well as broad US dollar weakness. Focus on UK CPI data.

GBP/USD News

USD/JPY holds steady around 107.25 on BOJ's status-quo

USD/JPY shows little reaction to the BOJ's status-quo on the monetary policy decision and downbeat quarterly outlook report. The spot also remains unfazed by the risk-on rally in the Asian equities amid coronavirus vaccine hopes. 

USD/JPY News

Gold: Bulls gather pace for further upside

Gold consolidates the recent pullback well above the $1800 mark, as the coronavirus vaccine hopes boost the equities and downs the greenback. Are gold bulls bidding up for a test of the multi-year highs?  

Gold News

WTI faces rejection at key hurdle despite decline in US inventories

WTI surrenders gains after facing rejection at key trendline hurdle. Fears that OPEC+ may ease output cuts look to be capping the upside. The black gold rose nearly 0.5% on Tuesday, as US crude inventories fell by 8.3 million barrels in the week to July 10.

Oil News

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Inflation

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