Advanced Theory & Practice of Bonds

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1-2 December 2021

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U.S. Treasury yields rose on Tuesday shortly after European Central Bank President Mario Draghi delivered upbeat remarks at their annual conference held in Portugal.

Key figures:

  • Yield on U.S. 10-year Treasury rose by 7 points to 2.20% on 28 June morning, back to pre-June Fed rate hike levels.
  • Yield on U.S. 30-year Treasury also jumped up by 6 basis points to 2.74%, reversing the post Fed hike rally.

Draghi expressed confidence in the restoration of inflationary pressures in the region and alluded to possible changes to their monetary policies. Traders took to his comments as a signal that the ECB is set to taper its quantitative easing program, which is a departure from the tone set thus far.

The resulting sell-off drove bond yields up across the euro zone. According to Reuters, Germany’s 10-year bond yields rose over 10 basis points to 0.35%, while other euro zone bond yields were 10-13 basis points higher for the day. Yields move inversely to prices.

His sentiments on inflation echo that of Fed’s Chair Janet Yellen, as both attempt to strengthen the case for tighter monetary policies.

“Given that hawkish central bankers are looking to get ahead of the game on inflation, expect the curve-flattening theme to persist for the remainder of the year,” said Divyang Shah, global strategist at IFR Markets.

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