The ten-year US Treasury Bond yield rose above 3% for the first time since 2011 during April, stoked by mounting concerns over the outlook for inflation. The price of oil continued to climb during the month, and the price of a barrel of Brent Crude oil rose above US$75 amid worries that burgeoning trade wars and renewed sanctions against Iran will stoke inflationary pressures.
- Moody’s affirmed the USA’s “Aaa” rating
- ECB remains cautiously confident about the eurozone’s economic outlook
- The eurozone’s rate of inflation picked up to 1.3% YoY
The ten-year US Treasury Bond yield rose above 3% for the first time since 2011 during April, stoked by mounting concerns over the outlook for inflation. The price of oil continued to climb during the month, and the price of a barrel of Brent Crude oil rose above US$75 amid worries that burgeoning trade wars and renewed sanctions against Iran will fuel commodity prices and stoke inflationary pressures. Over April as a whole, the yield on the benchmark US Treasury Bond surged from 2.75% to 2.96%.
“The ten-year US Treasury Bond yield rose above 3% for the first time since 2011”
Credit ratings agency Moody’s affirmed the USA’s “Aaa” rating and “stable” outlook, citing the country’s “exceptional economic strength”, its robust institutions, its “very low” exposure to credit-related shocks, and the “diversity, dynamism and competitiveness” of the US economy. Moody’s also highlighted the “unique and central roles” played by the US dollar and the US Treasury bond market within the broader global financial system. Moody’s believes that all these factors combine to offset the US’s reduced – albeit still high – fiscal strength.
Although European government bond yields generally rose during April, their ascent was curbed by some disappointing economic data in the region. European Central Bank (ECB) President Mario Draghi conceded that economic growth in the euro area had moderated; nevertheless, he pointed out that “some sort of normalisation” should be expected after four quarters of strong economic expansion. Mr Draghi remains cautiously confident that inflation will achieve its near-2% target, and the eurozone’s annualised rate of inflation rose to 1.3% during February. The benchmark German government bond yield rose from 0.43% to 0.50% in April, while the ten-year French government bond yield climbed from 0.72% to 0.79%.
During the first quarter of 2018, S&P Global Ratings upgraded four European sovereign ratings during the first quarter, raising Greece from “B-“ to “B”, Lithuania from “A-“ to “A”, Croatia from “BB” to “BB+”, and Spain from “BBB+” to “A-“.
According to the Investment Association (IA), fixed income was the worst-performing asset class for retail investors during March, experiencing net retail outflows of £309 million. Much of this was caused by a sharp drop in demand for funds in the Sterling Strategic Bond sector. Investors’ appetite for funds in the £ High Yield and UK Gilts sectors also fell; in contrast, demand for Global Bond funds and £ Corporate Bond Funds recovered strongly.
A version of this and other market briefings are available to use in our newsletter builder feature. Click here