Markus Allenspach, head of Fixed Income Research at Swiss asset manager Julius Baer, commented the current bond market environment.
He assessed current stress on financial markets resulted of opposing forces.
“Actually, the tragic events in Nice and Turkey augur for investments in safe assets, in particular government bonds. At the same time, the news flow out of the US has improved to an extent that reignites the speculation on a further rate hike by the US central bank,” Allenspach explained.
Illustrating the result of that “tug of war” opposing safe-haven demand and rate fear, he quoted the example of the yield of the US 10-year Treasury note.
“It moved up from 1.35% early last week to briefly touch 1.6% after the publication of higher-than-expected numbers for US core inflation and industrial production on Friday, but fell to 1.55% in late trading when news of the military coup in Turkey hit the screens. First indications this morning point to a yield of 1.57%, not much changed from Friday’s close,” Allenspach argued.
Another example he said has been the yield of the German 10-year Bund which rebounded last week from -0.2% to +0.003% on Friday and slightly slipped in negative territory again in the aftermath of the failed coup in Turkey.