Bond Markets 

The Fed has hiked 75 basis points interest rates on 21st Sep FOMC meeting, the third biggest successive increase since 1994. Fed also raised the official projected interest rate figure to 3.25% by year end which means another 125 Basis points of tightening by year end. In the meeting Fed indicated that it would continue to raise rates until it sees clear and consistent evidence that inflation is abating. US entered a recession phase with consistent two quarter negative GDP growth rate in 2022.

All this development has resulted in the US Bond Market consistent hardening of interest rate since last nine weeks. US Treasury’s 10 Year Bond yield gained 19 Basis Points and closed the week at 4.21% on the back of Consumer Price Index at 8.2% in September, Core CPI move to 6.6% YoY highest since 1982 which hit 40 Year High; extremely tight labor markets and unemployment is at 50 years low. US Treasury 2 Year Bond around 4.5% and is at its highest level since August 2007.  

Germany Treasury’s 10 Year Bond has seen 5 Basis points gain closed at 2.10%. German inflation (HICP) rose close to a 40-year high of 10.9 percent in September month. ECB also goes big with jumbo rate hike of 75 Basis Points to 0.75% from zero percentage on 8th Sep meetings with a clear message of more hikes to come in the coming meetings.

Bank of England hikes another 50 Basis points base rate to 2.25% on its last Monetary policy meeting and Government’s biggest tax cuts since 1972 triggered financial chaos. Britain’s central bank in the last few weeks had to step in to try and quell a fire-storm in the bond markets which marked a plummet in sterling. It was an action-packed last few weeks where US and Britain longhorn, seen face to face to establish its dominance over currency and bond market. In the midst of this, UK Prime Minister Liz Truss stepped down after just six weeks in office putting Britain under economic fallout. Moody’s downgraded UK, cut the outlook to “Negative” from “Stable”.  

UK Treasury’s 30 Year Bond recorded a 270 Basis points movement on either side between 22nd to 28th Sep 2022. Bond movement has gone in the history book as this level of volatility has never been seen in the past. UK Treasury’s 10 Year Bond closed at 4.08% with a weekly gain of 26 Basis Points. UK is fighting a higher Inflation; current Inflation rate is 10.1% with the target to keep it at 2%.

RBI has raised the repo rate by 50 Basis point taking the headline rate to 5.9% on 30th Sep Monetary Policy meeting and continuing to withdrawal of accommodation which pushed the yield curve northward. Retail Inflation set to ease from September high as per RBI. India Treasury’s 10 Year Bond has seen a 12 Basis Point gain closed at 7.39%. We expect such measures will help to retain the growth momentum and to curtail Inflationary pressure further.