Article Hero

Tensions in the fixed income market – Market Overview

1614342057.png
Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
Yields of American treasury bonds reached new highs, and with the 10-year bond surpassing the 1.60% level, the U.S. dollar experienced a big rally.

Fed vs ECB – two different point of views.

The Federal Reserve did not show a great deal of concern about tensions in the fixed income market (especially in long-term references) and announced that it would maintain its policy of unlimited asset purchases with interest rates at historic lows. However, the European Central Bank members have expressed their concerns about the possibility that these interest rate hikes could adversely affect the economic recovery of the euro area.

According to ECB board members, the central bank could step up its bond purchases policy should this outflow continue. An inflationary rebound could indeed be what the ECB is waiting for. Still, rising long-term interest rates could endanger economic recovery and the stability of the most vulnerable countries due to their high level of indebtedness.

As an example, yields on Italian 10-year bonds have risen 40 bps in the last two weeks.

Asian stock markets hit hard.

This whole situation is causing uncertainty in global stock markets, not only in the United States but also in Asia. The Japan225 index is down nearly 4%, the most significant drop in a day after a sustained rally. The index is getting close to the 28840 support level below which the bull market would be over from a technical perspective.

The U.S. Dollar is on the rise, as the Euro plunges.

The U.S. Dollar is rising against all its counterparts but especially against commodity currencies such as the Australian Dollar and the Canadian Dollar, currencies of countries that could be more affected if an interest rate hike delays the global recovery.

As for the Euro, the ECB’s support for additional bonds purchase and an intensifying of its ultra-expansionary monetary policy has caused the currency to drop. After Bank of America changed its forecast for the EUR/USD pair, the Euro lost even more ground.

At the moment, the pair would need to trade below 1.2065 to gain bearish momentum.

Sources: WSJ, FXLive.

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

Share this article

How did you find this article?

Awful
Ok
Great
Awesome

Read More

Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.