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Tradeweb Government Bond Update - January 2022

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Global government bond markets experienced a sell-off in January, with yields on 10-year benchmark notes logging double-digit basis point increases across the board. Among the month’s top five movers, Canada’s 10-year bond mid-yield and its U.S. Treasury counterpart climbed 35 and 28 basis points to close at 1.77% and 1.78%, respectively. At their January monetary policy meetings, both the Bank of Canada and the U.S. Federal Reserve voted to maintain interest rates. The Federal Open Market Committee also said it would soon be appropriate to raise the target range for the federal funds rate, and decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March.

Another big mover, the UK 10-year Gilt yield rose by 34 basis points over the month to close at a three-year high of 1.31%. According to the Office for National Statistics, UK inflation jumped to 5.4% in December, up from 5.1% in November and the highest rate since March 1992, paving the way for a rate hike in February. A flash estimate from Eurostat showed that Euro area annual inflation is projected to be 5.1% in January, up from 5% in December. In Germany, the inflation rate is expected to be 4.9% in January, down from 5.3% in December. The yield on the German 10-year Bund finished January in positive territory at 0.01% after increasing by 19 basis points on the previous month-end.

However, the biggest move came from Greece’s 10-year government bond yield, which ended January 42 basis points higher at 1.72%. On January 30, Greek Prime Minister Kyriakos Mitsotakis survived a censure motion brought by the main opposition party over his government’s handling of a severe snowstorm that left motorists stranded and caused power outages. On the same day, Portugal's Prime Minister Antonio Costa won a snap general election called after failing to pass his 2022 budget, and secured an unexpected outright majority in parliament against poll projections. The yield on the Portuguese 10-year benchmark note climbed 18 basis points in January to close at 0.65%.

Also a top five mover, Australia’s 10-year government bond yield rose by nearly 23 basis points to 1.90%, after closing at a month high of 1.97% on January 19. Its Japanese equivalent finished the month over 10 basis points higher at 0.17%. The country’s central bank decided, by an 8-1 majority vote, to keep interest rates unchanged and said it will continue with monetary easing until consumer price index inflation meets the 2% price stability target in a stable and sustainable manner. Meanwhile, the consumer confidence index declined to a 5-month low of 36.7 in January from 39.1 in December 2021.

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