Government bond yields, which had rapidly retreated last week amid hopes the Fed has finished its rate hike cycle, changed little over this holiday-truncated week. The U.S .10-year Treasury yield gained only 3 basis points to 4.47% from 4.44% while the 2-year yield was up 6 basis points to 4.96% from 4.90%. European bond markets followed the same trend, with the 10-year German bund yield up 5 basis points week-over-week to 2.64% from 2.59% and the yield on the French 10-year OAT up 4 basis points to 3.20% from 3.16%. The yield on the 10-year Italian Government bond gained 3 basis points to 4.40% from 4.37%.
Against this backdrop, the riskiest bond segments caught their breath after their sharp rebound last week.
The IBOXX € Liquid Corporates lost 0.40% for the week. In the U.S., the IBOXX $ Domestic Corporates index was up 0.42%.
High-yield bonds gained 0.45% in Europe (IBOXX € Liquid High Yield Index) and 0.48% in the U.S. (Markit iBoxx USD Liquid High Yield Capped Index). The price of protection against default of U.S. high-yield continued to decrease significantly. ETFs invested in high-yield bonds saw substantial inflows this month (+$11.4 billion) and this week (+$1 billion), in contrast to ETFs invested in government bonds (outflows of $870 million this week, inflows of $1.8 billion this month).
Lastly, emerging debt in local currencies was flat (down 0.04%).
The dollar index, a gauge of the greenback's value against six major currencies, weakened again, reaching a three-month low at 103.42 (-0.42% over the week).