GLOBAL BOND MARKETS


bonds


Big picture

THEMES AFFECTING Bonds



ISHARES GLOBAL UTILITIES ETF

ISHARES US UTILITIES ETF


Bonds as related to other asset classes

Bond prices and yields often drive price movements in currencies and other asset classes. In this section, we aim to explain how these movements are analyzed and traded by our dedicated contributors and in-house analysts.

A bond yield is the return an investor gets on a bond. Contrary to many other assets, bond prices and bond yields are inversely related. When the price of a bond increases, the yield decreases. When the price of a bond decreases, the yield increases. Thus, a so-called rally in the bond market means that yields decreased, while a bond sell-off means that yields increased.

It is important to know the underlying dynamic of why a bond's yield is rising or falling. This movement can be based on interest rate expectations or market sentiment, such as uncertainty, which triggers a ‘flight to safety’ to bonds, traditionally considered less risky compared to stocks.

The change in interest rates, either the target rate or market rates, is important because it makes stocks or bonds become more attractive. When this happens, prices tend to trend as money flows from one vehicle to the other until the new relationship is adequately reflected in prices.

Bonds and stocks are in constant competition for investor money, and less so commodities. These, particularly Gold, usually trend in the opposite direction of bond prices (falling commodity prices usually lead to higher bond prices, and vice versa). Therefore, commodities generally trend in the same direction as interest rates.

US Treasuries

If you trade USD-based or USD-quoted currency pairs, it is crucial to monitor the United States (US) bond market, as movements in Treasury yields impact the US Dollar. Treasury yields’ movements are often driven by comments from Federal Reserve (Fed) officials, so staying updated on news coming from US monetary authorities is essential. US stocks usually get a boost from rising bond prices (falling Treasury yields), especially in inflationary periods. But if they don't, then it's worth looking for market sentiment and identifying reasons for the cautious stance in bond markets. US stock prices can also rise alongside falling bond prices (rising Treasury yields) during deflationary periods. In such cases, both stock prices and interest rates rise, driving global demand for the US Dollar.

UK Gilts

Global bond prices tend to move in synchrony, but occasionally, a country's bond market may experience sharper movements compared to others. Sometimes this volatility is related to currency fluctuations. The Gilt, the 10-year benchmark in the United Kingdom (UK) fixed-income market, typically has a positive correlation to the Pound Sterling (GBP). A decoupling between these markets can serve as an early alert that an intermarket relationship has shifted. Changes in foreign exchange prices can overwhelm relative return calculations for international investors buying Gilts. Stripping out the currency component, UK Gilts should still provide returns to investors. Otherwise, other bond markets such as US Treasuries, may become attractive. Additionally, a prolonged trend in rising energy prices is a factor to consider as it will affect inflation expectations and therefore the Bank of England's (BOE) monetary policy.

Latest Bonds & Interest Rates Analysis


Latest Latest Bonds & Interest Rates Analysis

Editors' picks

EUR/USD eases toward 1.1700 as USD finds fresh demand

EUR/USD eases toward 1.1700 as USD finds fresh demand

EUR/USD eases toward the 1.1700 mark in early Europe on Friday. The pair faces headwinds from a renewed uptick in the US Dollar as investors look past softer US inflation data. However, the EUR/USD downside appears capped by expectations of Fed-ECB monetary policy divergence. 

 

GBP/USD steadies below 1.3400 as traders digest BoE policy update and US inflation data

GBP/USD steadies below 1.3400 as traders digest BoE policy update and US inflation data

The GBP/USD pair stalls the previous day's pullback from the vicinity of mid-1.3400s and a nearly two-month high, though it struggles to attract meaningful buyers during the Asian session on Friday. Spot prices currently trade around the 1.3380-1.3385 region, up only 0.05% for the day, amid mixed cues.

USD/JPY extends gains above 156.00 after the expected BoJ rate hike

USD/JPY extends gains above 156.00 after the expected BoJ rate hike

USD/JPY sees a fresh leg higher and regains the 156.00 level in Friday's Asian trading. The Japanese Yen loses further ground, digesting the Bank of Japan's (BoJ) expected 25 bps rate hike to 0.75%. Traders now look to Governor Ueda's press conference for fresh directives. 

Gold seems vulnerable as USD bulls shrug off softer US CPI

Gold seems vulnerable as USD bulls shrug off softer US CPI

Gold extends the previous day's late pullback from the vicinity of the record high and attracts some follow-through selling during the Asian session on Friday. The US CPI report released on Thursday pointed to cooling of inflationary pressure.

WTI edges lower below $56.50 on US Dollar strength, weak China demand

WTI edges lower below $56.50 on US Dollar strength, weak China demand

West Texas Intermediate, the US crude oil benchmark, is trading around $56.30 during the early European trading hours on Thursday. The WTI price declines amid a modest rebound in the US Dollar and signs of weak Chinese energy demand. 

Interest Rates

Inflation

Signatures