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While the second wave of the Covid-19 pandemic continued to gather pace across Europe, yields on local 10-year government debt declined in October. The biggest decrease came from Portugal, whose 10-year benchmark bond mid-yield dropped 16 basis points to end the month at 0.10%, near its three-year low of 0.07%. Meanwhile, its Spanish and Italian equivalents fell by more than 11 basis points to 0.13% and 0.71%, respectively.

Last week, FIA hosted a panel during the FIA EXPO-Virtual Conference titled, ‘US Treasury Market: Key Takeaways from March 2020,’ featuring industry experts in the cleared derivatives space including leaders from Citadel, J.P. Morgan, Managed Funds Association, DRM and Tradeweb’s own managing director and head of US rates and product strategy, Elisabeth Kirby.

In addition to the yearly seasonal inflationary increase that typically occurs before the holiday period, rising inflation as a result of Covid driven government spending has been hitting headlines lately. These recent developments have led market participants to carefully assess their long-term exposure to inflation and whether it’s best to hedge now or going forward. Volumes for the inflation swap market have been increasing as a result.

Sovereign bonds for developed markets reached an inauspicious milestone last month when the yields on every single European 2-year benchmark government bond fell into negative territory. Europe, of course is not alone in its run of record-low yields. Major markets around the world, from Japan to the U.S. are all experiencing historically low yields as the COVID-19 pandemic continues to push investors into safe havens.

The wild swings in government bond yields that characterized most of 2020 were largely muted in December. Bucking the trend, the UK 10-year Gilt yield ended the month nearly 12 basis points lower at 0.19%. A steep rise in COVID-19 cases prompted new restrictions in the country, while officials raced to finalize an agreement on post-Brexit EU-UK relations. On December 17, the Bank of England left its monetary policy unchanged, keeping the bank rate at 0.1% and the target for asset purchases at GBP 895 billion by the close of 2021.

The sterling swap market is at a critical juncture for completing the transition away from LIBOR to SONIA by the end of the year. 2021 saw a strong start for SONIA, in terms of liquidity and robust trading, as the switch away from sterling LIBOR continues to drive momentum.

Amid ongoing debates about fiscal and monetary policy in February, global sovereign debt markets experienced a widespread sell-off for the second consecutive month. Ten-year government bond mid-yields increased across the board, with those for Australia climbing by more than 60 basis points to 1.72%, their highest closing value since early May 2019. At its February meeting, the country’s central bank decided to extend its bond purchases by an additional AUD 100 billion, when the current quantitative easing program is completed in mid-April.

March was a mixed month for global government bond yields, with those for the U.S. 10-year Treasury note rising by 29 basis points to 1.75%. This was the benchmark bond’s fourth consecutive monthly yield increase and its highest closing point since January 2020. On March 17, the Federal Reserve maintained its asset purchases and kept interest rates near zero. According to the U.S. Bureau of Labor Statistics, total nonfarm payroll employment rose by 916,000 during the month, while the jobless rate edged down to 6%.

Volatility returned to government bond markets in April, amid a flood of central bank decisions and noteworthy economic data. Yields on 10-year benchmark notes mostly increased, with some exiting negative territory.

In July, it was linear swaps. In November, non-linear. And next week, on December 13, the further expansion of RFR First in the cross-currency swaps market. The end of LIBOR, and more tellingly, the availability of significant liquidity in an alternative risk-free rate through SOFR, is arriving.