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Treasury Yields Plunge Again

Published 2023-12-04, 07:24 a/m

Treasury yields took a nosedive amid ongoing rate cut bets following comments from Federal Reserve Governor Christopher Waller, normally known as a hawkish voice, who suggested on Tuesday that the U.S. central bank's monetary policy is "well-positioned" to tame inflation.

Waller also added that officials could start lowering interest rates if inflation continues to ease back down to the Fed's 2% target. The yield on the 2-year Treasury, which is more sensitive to Fed policy, slumped 40 basis points for the week to 4.55%, its lowest level since June, while the 10-year Treasury yield also dropped sharply to 4.22%, down 25 basis points. Echoing comments from Waller, Cleveland Fed President Loretta Mester said on Wednesday that "monetary policy is in a good place."

Government bonds followed suit in Europe with the 10-year German bund yield down 28 basis points week-over-week to 2.36% from 2.64%. Same move for the yield on the French 10-year OAT falling to 2.92% from 3.20%. S&P has maintained France's AA credit rating with a cautious outlook.

Against this backdrop, the riskiest bond segments rebounded strongly.

The IBOXX € Liquid Corporates gained 1.78% for the week. In the U.S., the IBOXX $ Domestic Corporates index was up 1.22%. High yield bonds followed suit, with a gain of 0.84% in Europe (IBOXX € Liquid High Yield Index) and a jump of 1.36% in the U.S. (Markit iBoxx USD Liquid High Yield Capped Index). Lastly, emerging debt in local currencies was up 0.62% as the greenback weakened (dollar index below 103.20, a 3-month low).

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