LEWIS AUBREY-JOHNSON – HEAD OF FIXED INCOME PRODUCTS
There has been a decline in fund and government bond yields. The US bond yields have fallen further in August. How have recent events in the market contributed to this? We will be watching the markets carefully and responding as we go.
00:00:00:00 - 00:00:27:14
So the big development in bond land in recent days has been this significant decline in fund and government bond yields. As you can hopefully see from the chart behind me, the US two year yield has fallen from around 4.5% a few days ago to 4%, although at one point earlier this week it was close to 3.5%. This decline, I think, is being driven by two elements.
00:00:27:15 - 00:00:58:28
The first was just a raft of weaker economic data, such as the US ISM manufacturing, initial jobless claims and the US employment report. And these all showed slowing hiring, downward revisions to historic data, rising unemployment and weaker than expected average hourly earnings. And I think combined with last week's fed press conference where they they clearly expressed the likely intention to begin cutting rates in September.
00:00:59:01 - 00:01:22:22
Know markets were already scrambling to to reprice the rate cutting path. However, I think this move lower in yields was was undoubtedly exacerbated by the second element, which was the big risk market selloff and rising general volatility that we saw at the start of the week. which, as I mentioned at one point pushed the US two year yield.
00:01:22:24 - 00:01:50:03
Well, it was down 20 basis points on the day and it was generating headlines about emergency fed rate cuts. Now what do we think about this big move. Well we've been positioned for a slowdown in US growth. given the fact that us monetary policy has certainly been restrictive for some time now. And moreover, that some of the elements that were perhaps boosting the US economy had begun to wane.
00:01:50:05 - 00:02:13:10
However, the risk off related, moves have probably taken government bond yields a bit beyond fair value in our judgment. Yes, the US economy is likely to slow, but not dramatically. And as a result of that, we we trimmed duration earlier in the week. Now front end yields have been rising again in the past couple of days perhaps correcting some of that move.
00:02:13:13 - 00:02:32:28
So as ever we'll be watching the markets carefully and responding as we go.
These videos are brought to you by Invesco’s fixed income team in Europe. In today’s video, you heard from Lewis Aubrey-Johnson. Lewis is Invesco’s Head of Fixed Income Products for the IFI Europe team. The team manages a range of strategies across the fixed income landscape.
Each month brings a new, easily digestible instalment. Catch up on previous episodes below.
US Treasury yields have fallen further in July, and the market is now pricing towards two interest rate cuts this year. How have the team adjusted their duration position in response to changing economic conditions?
Bond markets suffered volatility in the first quarter of 2024 because of strong US labour market and inflation data. As both of these factors moderate, how does it impact our outlook and portfolio management?
The recent government bond market sell-off saw yields across some securities rise yet again. Hear what we think the key factors are and how this could play out in the medium term.
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