Tradeweb Government Bond Update - September 2018

A worldwide sell-off took hold of government bond markets in September against a background of closely-watched central bank decisions.  Out of the 18 benchmark bond yields examined by Tradeweb each month, 15 saw increases and 13 had double-digit rises.

The U.S. Federal Reserve continued to normalize monetary policy, shifting the federal funds target to 2.0-2.25%. The mid-yield on the 10-year Treasury ended the month 20 basis points higher at 3.06%. Its Canadian counterpart also climbed 20 basis points, finishing at 2.43%. The Bank of Canada left rates unchanged on September 5, following a 25 basis points hike in its previous meeting.

Similarly, the European Central Bank held its main rate steady at 0%, and reaffirmed its plans to keep it low until the summer of 2019, even as it reduces asset purchases and will likely end them completely in December. Ten-year mid-yields for Austria, Belgium, France, and Ireland all rose by double-digits, while those for Germany’s 10-year Bund increased by nearly 15 basis points to close September at 0.48%.

Amid ongoing Brexit negotiations, the Bank of England also left rates on hold at 0.75%, following August’s increase from 0.5%. The UK 10-year Gilt yield rose by almost 15 basis points to end the month at 1.58%. Its Swedish equivalent also increased by nearly 14 basis points to close at 0.63%. Like the ECB and BOE, the Riksbank kept its benchmark interest rate steady at -0.5%, where it has been since early 2016, but indicated it might raise the repo rate in either December or February.

However, Finland’s 10-year bond mid-yield saw the largest overall increase of 27 basis points over the month, closing at 0.73%. Ratings agency S&P maintained the country’s AA+ rating citing a stable economic outlook.

In contrast, Portugal’s 10-year government bond yield fell by almost four basis points to 1.88%. Mid-yields for Italian and Greek 10-year debt dropped even more by approximately 9 and 22 basis points to end September at 3.14% and 4.15%, respectively. Italy’s newly-formed government tensely negotiated budgetary plans with the European Commission during the month. Activity in Italian government bonds surged on Tradeweb on the last trading day of September, with approximately EUR 5.5 billion in executed volume.

In the Asia-Pacific region, the Reserve Bank of Australia kept rates at an all-time low of 1.50% for the twenty-fifth month in a row. The mid-yield on the Australian 10-year note climbed 19 basis points to 2.67%. In Japan, 10-year government bond yields finished September at 0.12%, their highest level since January 2016.