Bond Market Outlook
2022-11-18
■ Eurozone government bonds: The topic of interest rate hikes from Europe lacks decisive factors and will be influenced by the situation abroad.
■ Japanese government bonds: Yields more susceptible to downward pressure as supply and demand improve.
German 10-year government bonds rallied (yields fell). Earlier this week, German 2-year bond yields rose sharply as some senior European Central Bank (ECB) officials announced continued aggressive rate hikes. However, later in the week, U.S. interest rates fell sharply due to the U.S. price index (CPI), putting more downward pressure on German Bund yields.
This week, the topic of the ECB rate hike will lack decisiveness. In this case, keep an eye on the announcement of the UK's medium-term fiscal plan, as well as the movement of UK interest rates. Once the UK market seems to calm down, if the market is not satisfied with the fiscal consolidation measures, UK interest rates will rise and the Eurozone government bond market will face upward pressure on yields. The instability is likely to continue due to the volatile situation overseas.
10-year government bonds rose slightly (yields fell). The 30-year tender conducted on the 9th was seen as a solid result, with some buyers dominating, and it is best to remain on the sidelines until the October U.S. Consumer Price Index (CPI) is released. Speculation that the pace of U.S. interest rate hikes will slow spread over the weekend, putting downward pressure on 10-year Treasury yields over the weekend.
The government bond issuance program is limited to short- to medium-term bonds and has limited impact on the market as it is within the market's expectations. The scenario for ultra-long-term government bonds over 10 years is improving through the 30-year government bond tender. This week, the Bank of Japan plans to conduct a 5-year government bond tender on the 15th and a 20-year government bond tender on the 17th. If the supply and demand situation is confirmed, the 10-year government bond yield may face further downward pressure.