The Federal Reserve is poised to resume raising interest rates this month after keeping them unchanged in June. Traders anticipate a boost of a quarter of a percentage point, but some speculate that the Fed might pause until it evaluates the effectiveness of its measures to curb inflation until now.
The yield of long-term Treasury bonds remained virtually unchanged. The U.S. 10-year Treasury yield gained only one basis point to 3.84%. By contrast, the yield on the U.S. 2-year Treasury rose 8 basis points, to 4.85% from 4.77%, bringing the 10-2 year yield spread to -1.01%.
By contrast, in Europe, the yield on the German 10-year Bund lost 4 basis points to 2.47% from 2.51%. Same trend for the French 10-year OAT, down 5 basis points just below the 3% level. It’s worth noting that Klaas Knot, a known hawk among ECB members, said in an interview on Tuesday that a rate hike in July was "a necessity," but "for anything beyond July it would at most be a possibility, but by no means a certainty."
Against this backdrop, corporate bonds treaded water. In Europe, the IBOXX € Liquid Corporates index advanced 0.28%. In the U.S., the IBOXX $ Domestic Corporates Index slid 0.15%.
High-yield bonds edged up 0.06% in Europe (IBOXX € Liquid High Yield Index) and edged down 0.05% in the U.S. (Markit iBoxx USD Liquid High Yield Capped Index).
Emerging debt in local currencies was also flat (+0.05% week-over-week), though the greenback bounced after the release of U.S. retail sales data for June. While the primary figure for June rose less than anticipated, the May data was upwardly revised, demonstrating continued consumer resilience.