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Tradeweb Government Bond Update – July 2023

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Most 10-year government bond yields rose in July, continuing the sell-off that took hold in May and June. Australia, Sweden and the United Kingdom bucked the trend, with mid-yields on the UK 10-year Gilt falling by 9.5 basis over the month to close at 4.29%. The GfK Consumer Confidence Index dropped six points to -30 in July 2023, amid concerns over personal finances and the wider UK economy.

Conversely, Canada’s 10-year gilt yield climbed nearly 23 basis points to end July at 3.5%. The country’s central bank increased its target for the overnight rate to 5%, with the bank rate at 5.25% and the deposit rate at 5%. According to the Bank of Canada’s July Monetary Policy Report, the global economy will grow by around 2.8% this year and 2.4% in 2024, followed by 2.7% growth in 2025.

In neighbouring U.S., the Federal Open Market Committee decided to raise the target range for the federal funds rate to 5.25% - 5.5%, the highest level in 22 years, as it seeks to return inflation to its 2% objective. In addition, the Committee said it would continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as previously announced. The U.S. 10-year Treasury yield ended July nearly 14 basis points higher at 3.96%.

Similarly, the yield on the Japanese 10-year benchmark note logged an increase of over 20 basis points, finishing the month at 0.6%. On July 28, the Bank of Japan announced it would conduct yield curve control with greater flexibility, regarding the upper and lower bounds of the range as references, not as rigid limits, in its market operations. It would also continue to allow 10-year JGB yields to fluctuate in the range of around plus and minus 0.5 percentage points from the target level.

On July 27, the European Central Bank’s Governing Council decided to raise the three key ECB interest rates by 25 basis points.  Preliminary data from Eurostat showed that the annual inflation rate in the Euro Area slowed to 5.3% in July 2023 from 5.5% in June. Germany’s 10-year Bund mid-yield rose by nearly six basis points to 2.45% over the course of July. The ifo Business Climate Index fell for the third consecutive month to 87.3 points in July 2023, down from 88.6 points (seasonally adjusted) in June.


Global government bond mid-yields on ten-year benchmarks


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