Tradeweb Government Bond Update – November 2019

The global bond market sell-off continued in November, pushing many European benchmark bond yields closer to positive territory. At month end, nearly 53.1% of European government bonds closed with a negative yield, down from 57.6% in October and 63.1% in September.

The largest mover was the Italian 10-year note, whose mid-yield surged 30 basis points to end November at 1.23%. Italy’s Finance and Economy Minister Roberto Gualtieri predicted that fourth-quarter economic growth would be slightly positive, and that a 0.6% rise for 2020 was “widely reachable.”

Greece’s 10-year government bond yield saw the second largest shift. It finished the month 26 basis points higher at 1.30%, following a drop of 23 basis points in October. The European Bank for Reconstruction and Development (EBRD) and the Hellenic Fiscal Council suggested that economic growth in the country could be 2.4% and 3.5%, respectively, in 2020. Portugal and Spain’s 10-year government bond yields also saw double-digit increases over the month, rising by 23 and 18 basis points to close at 0.40% and 0.41%, respectively.

In Germany, the Bundesbank predicted weak but positive growth in the fourth quarter of 2019, and noted that the country’s industrial sector might be stabilizing. Germany avoided a recession in the third quarter with a 0.1% growth. The yield on the 10-year Bund climbed five basis points to end November at -0.35%, after a month-high of -0.25%.

Like Germany, the UK avoided a recession in Q3, with a 0.3% growth. However, data from the Office for National Statistics showed that both production output and manufacturing were flat. Ratings agency Moody’s downgraded the country’s credit outlook and signalled it could also lower the credit rating on its government debt. The UK 10-year Gilt yield increased by seven basis points during November to close at 0.70%.

Its U.S. Treasury equivalent moved up nearly nine basis points to end November at 1.78%. Regional central bank forecasts pointed to concern over economic growth in the fourth quarter of the year. The New York Fed’s GDP Nowcast and the Atlanta Fed’s GDPNow predicted gains of just 0.3% and 0.4%, respectively.

In Asia, the yield on Japan’s 10-year benchmark note climbed 6 basis points to close at -0.08% on November 29. According to the Cabinet Office, the country’s economy advanced 0.4% in the third quarter, above preliminary estimates of a 0.1% growth. Meanwhile, Australia’s 10-year government bond yield bucked the sell-off trend, decreasing by six basis points to finish November at 1.04%.