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The yield on two-year bonds was 3.8% while 10-year bonds yielded more than 4%. As investors move into bonds, forcing bond prices higher, yields fall. A bond's price and yield work in opposite directions - when a bond's price goes down, its yield goes up and vice versa. [Extracted from the article]

(Bloomberg) -- The yield on the UK's 30-year inflation-linked bonds rose to 2% for the first time since the market meltdown in late 2022.The move comes amid a global bond-market selloff as persistent inflation means policymakers will likely have to slow the pace of cutting interest rates. Gilt yields are also hitting multi-year highs, with the 30-year at 5.28%, the highest since 1998.©2025 Bloomberg L.P.By Alice GledhillReported by Author [Extracted from the article]

Fitch Ratings has downgraded Southern Water Ltd to one step above junk status due to the increasing risk posed by its £1.6 billion derivatives portfolio, which creates super-senior liabilities. The water company's use of swaps as tools to borrow through the derivatives market has raised concerns about its creditworthiness, with its swap liabilities far exceeding the sector average. Despite Southern Water's turnaround plan and strong liquidity through May 2026, Fitch sees a risk of default if the company fails to maintain two investment-grade ratings. The water industry's derivative liabilities are under scrutiny, with Southern Water facing challenges in managing its swap restructuring transactions and long-term liabilities. [Extracted from the article]

Fitch Ratings has downgraded Southern Water Ltd to one step above junk status due to the increasing risk posed by its £1.6 billion swap portfolio, which creates super-senior liabilities. The utility's long-dated derivatives portfolio is seen as a drag on its creditworthiness, with some swaps used as tools for borrowing rather than typical hedges. Southern Water's swap liabilities are higher than the sector average, reflecting about 23% of its regulatory capital value. The water company's derivative liabilities are under scrutiny as the sector faces economic challenges, with Fitch expecting Southern Water to maintain liquidity over the next 12 months despite recent downgrades by Moody's Ratings. [Extracted from the article]

The yield on UK inflation-linked benchmark bonds reached 1% for the first time in two years, reflecting optimism about global economic growth under Donald Trump's policies. Real yields, which measure bond returns after inflation, rose due to expectations of increased economic activity. Speculation that the UK may benefit from Trump's policies more than the euro area contributed to the rise in yields. The UK's 10-year real yield increased by 12 basis points this month, in line with a similar rise in US rates. [Extracted from the article]

According to Pacific Investment Management Co. (Pimco), investors should consider buying five-year bonds as central banks in industrialized nations aim to slow down economic growth without causing a recession. Pimco believes that these bonds are in a favorable position as interest rates decrease and investors put their cash into the market. The US economy, along with others, is expected to achieve a "soft landing" with moderate growth and inflation. Pimco also suggests that high government deficits may drive long-term bond yields higher over time. The US fixed-income market has recently experienced a streak of gains, and Pimco predicts that developed market central banks will lower rates by 1.75 to 2.25 percentage points in 2025. Pimco advises caution in fixed income due to tighter valuations in corporate credit and recommends owning more interest-rate exposure in countries like the UK and Australia. They also suggest that high-quality bonds, such as Treasuries, can hedge portfolios against equity market slumps. [Extracted from the article]

The dollar has reached its lowest level since January due to increased bets on a half percentage point rate cut by the Federal Reserve. This has caused major currencies like the yen to strengthen. Analysts predict that the dollar will continue to weaken as the Fed eases and moves towards a neutral or lower interest rate next year. However, some believe that the market is overpricing the risk of a rate cut and that the Fed will only cut rates by 25 basis points. Overall, the market is largely in favor of a weaker US currency, with the euro, yen, Canadian dollar, and Australian dollar all expected to strengthen against the dollar in the coming year. [Extracted from the article]

The dollar has fallen to its lowest level since January as traders anticipate a potential half percentage point rate cut by the Federal Reserve. This decline in the dollar has boosted major currencies like the yen, which reached its highest level since July 2023. While there has been debate over whether the Fed will cut rates by 25 or 50 basis points, traders are favoring the latter option. Analysts predict a weaker US currency in the future, with the euro, yen, Canadian dollar, and Australian dollar all expected to strengthen against the dollar. [Extracted from the article]

Inflation expectations in Japan have reached their highest level since 2004, indicating that investors anticipate a rise in the cost of living. This is due in part to the weakening yen, which is driving up import prices. As a result, there is speculation that the Bank of Japan may raise interest rates at its next policy meeting in July. The rising inflation expectations could make it easier for the central bank to justify a rate hike, even if it is done only once or twice. [Extracted from the article]

The global bond market experienced a decline after a long winning streak, following the European Central Bank's decision to raise its inflation forecasts and cut interest rates. This move, which preceded the Federal Reserve's actions, led to an increase in bond yields worldwide. The US payrolls data, set to be released on Friday, also influenced the market. Additionally, the article briefly mentions other corporate highlights and upcoming key events. [Extracted from the article]

INVESTING Inflation may be about to make a comeback. At the most basic level, price inflation occurs when there's an increase in the price of goods and services, measured by the consumer price index (CPI). "We find equities aren't good short-term inflation hedges, but they tend to be a good inflation hedge over the long term", says Canavan. [Extracted from the article]

Ruffer LLP, a UK-based asset manager, is increasing its cash holdings to two-thirds of the money it oversees, the highest allocation ever. This move is in response to concerns about shrinking US liquidity and the potential for a market reversal. Ruffer is funneling the income from its cash holdings into insurance policies, such as credit default swaps and US stock options, that would profit in the event of a significant decline in Wall Street. The firm's discretionary operation allows it to concentrate its investments, and it aims to avoid losses like the 6% decline in its Total Return Fund in 2023. Ruffer believes that excessive optimism over US interest-rate cuts has left markets priced too high, increasing the risk of a liquidity crisis similar to Black Monday in 1987. The firm's investment objectives are capital preservation and delivering better returns than cash, with a focus on the former at this time. Ruffer's largest investments also include UK inflation-linked bonds and gold miners. [Extracted from the article]

Ruffer LLP, a UK-based firm, is increasing its cash holdings to two-thirds of the £22 billion it oversees due to concerns about shrinking US liquidity and the potential for a market reversal. The firm is funneling the income from its cash holdings into insurance policies in the form of credit default swaps and US stock options that would profit in the event of a significant decline in Wall Street. Ruffer's discretionary operation allows it to concentrate its investments, and it aims to prioritize capital preservation over delivering higher returns than cash. The firm's largest investments also include UK inflation-linked bonds and gold miners. [Extracted from the article]

According to financial futures markets, South Africa's central bank is unlikely to cut interest rates this year due to concerns about inflation. In fact, there is even a possibility that rates could be raised. This shift in sentiment is a response to the unexpected increase in US consumer prices for March, which has led investors to reassess the timing and extent of rate cuts by the Federal Reserve. As a result, traders are now pricing in a 20% chance of a quarter-point interest rate hike at the South African Reserve Bank's meeting in May. The central bank is cautious about making any moves before the Federal Reserve, as it fears that it could weaken the rand and increase import prices, putting pressure on inflation. Inflation expectations have also risen in South Africa, with the nation's breakeven rate climbing. Bloomberg's Africa economist predicts that the central bank will maintain its restrictive policy stance until at least 2025, as it will take longer than anticipated to reduce the inflation rate to the target range of 3% to 6%. [Extracted from the article]

El Salvador is returning to global debt markets with a dual-tranche offer, including a bond that will pay investors a higher interest rate unless the government can win credit upgrades or a deal with the International Monetary Fund. The first tranche is raising dollar debt due in 2030 with initial price talks in the low 12% area. The other offering is an interest-only bond with a coupon tied to the nation's credit score or its success in dealing with the IMF. The proceeds of the deal may be used to fund a buyback of existing notes due in 2025, 2027, and 2029. El Salvador's debt has seen significant returns recently, but concerns about fiscal deterioration and an agreement with the IMF have caused the rally to lose steam. Fitch Ratings and Moody's Ratings have El Salvador scored seven notches below investment grade, while S&P Global Ratings has it one level higher. The country last sold bonds during the pandemic at a coupon of 9.5%. [Extracted from the article]

Investor demand for UK debt remains strong as expectations of interest rate cuts outweigh concerns about government borrowing. The UK Debt Management Office received orders of over £56 billion for a £4 billion offering of 30-year inflation-linked debt, a record high for this type of security. The market reception is encouraging for the government's financing plans, and domestic investors purchased around 93% of the bonds. The Bank of England is expected to begin lowering interest rates in August, and investors are rushing to secure high yields before that happens. [Extracted from the article]

Investor demand for UK debt remains strong despite the government's plans for a large borrowing spree. The UK Debt Management Office received over £55 billion in orders for a 30-year inflation-linked debt offering, a record high for this type of security. This follows an oversubscribed sale of 10-year notes the previous day. Despite the large supply of gilts, investors are eager to secure high yields before the Bank of England lowers interest rates, with the first reduction expected in August. The yield on UK 30-year inflation-linked bonds is currently at 1.2%, slightly above the average rate of the past year. [Extracted from the article]

The Healthcare of Ontario Pension Plan (HOOPP) has seen gains from Canadian inflation-protected securities called real-return bonds, which have become more valuable during a turbulent period for fixed-income markets. HOOPP became a major buyer of these bonds when interest rates started rising in 2022, and by December, the bonds made up about half of the fund's target portfolio allocation to bonds. The fund's Chief Investment Officer, Michael Wissell, believes that real-return bonds are currently offering a compelling investment opportunity. HOOPP reported a 9.4% return last year, with gains in fixed income, stocks, private equity, and private credit. The fund increased its exposure to bonds after yields rose, resulting in net assets growing to C$112.6 billion ($83.5 billion). Wissell stated that it is unlikely that the fund will sell the real-return bonds anytime soon. [Extracted from the article]

The UK's recent bond sale saw high demand from investors, with the sale of £3.75 billion ($4.8 billion) 10-year bonds being oversubscribed by 3.61 times. This indicates that the government's plans for increased borrowing in the coming year have not affected investor demand. The sale of these bonds helped drive a rally in the country's bond market. The government's announcement of its largest-ever annual target for gilts issuance, excluding the Covid era, may have contributed to the high demand for this particular security. The next test of demand will be a potential sale of a new UK 30-year inflation-linked bond. The UK's borrowing rates have been falling, with the yield on 10-year bonds reaching its lowest point since February 2. This drop may be influenced by expectations of interest rate cuts by the Bank of England in 2024. [Extracted from the article]

The UK is planning one of its largest borrowing sprees ever to fund government spending. The Debt Management Office will issue £265.3 billion of gilts, which is close to the estimated amount. The government is reducing the sale of long-dated securities to ease the burden on investors. This shift is due to decreased demand from traditional buyers like pension funds. The funding package is significant as the central bank is also selling gilts. The Chancellor of the Exchequer announced a cut to the national insurance payroll tax and the introduction of a new retail bond. UK bonds have underperformed this year, and the government is seeking to diversify its funding base by tapping into retail investors. The Debt Management Office plans to sell short, medium, and long-maturity bonds, as well as inflation-linked bonds. [Extracted from the article]

The UK government has announced its borrowing plans for the upcoming fiscal year, which align with market expectations. The Debt Management Office will issue £265.3 billion of gilts, with a decrease in the proportion of long-maturity bonds to account for reduced demand. This move aims to provide relief for the underperforming bond market. The Chancellor of the Exchequer also announced a cut to the national insurance payroll tax, reflecting anticipated economic growth. The Conservative administration is seeking to close the gap in polls ahead of an expected general election. [Extracted from the article]

Canadian consumer prices eased in January, rising 2.9% from a year ago, which was slower than expected and marks the first time since June that the headline rate fell within the central bank's control range. This progress on underlying pressures may give the Bank of Canada more room to consider rate cuts in the coming months. The Bank of Canada's preferred core inflation measures also decelerated, further supporting the possibility of rate cuts. The report also highlights a divergence between Canadian and US inflation, with US consumer prices rising more than forecast. [Extracted from the article]

Ivory Coast has successfully sold its first dollar bonds in almost seven years, with demand for the offering exceeding supply by more than three times. The nation issued $2.6 billion in debt, with $1.1 billion in sustainable bonds and $1.5 billion in conventional debt. This marks Ivory Coast's return to the dollar-bond market and signifies the end of sub-Saharan African nations' limited access to international debt markets. The bonds will be eligible for inclusion on the JPMorgan EMBI Index, offering potential benefits such as higher demand, lower yields, and better visibility. [Extracted from the article]

Uruguay, a pioneer in green finance, is planning to secure a multilateral loan tied to environmental targets. The country is negotiating a loan from the Inter-American Development Bank with energy efficiency targets and is preparing to sign a $350 million World Bank loan that would reduce interest payments if methane emissions from livestock are reduced. Uruguay has previously sold sustainability-linked bonds and is considering various options for future debt funding, including local currency global bonds and reopening existing bonds. The country aims to be a regular sustainable finance issuer or loan taker, with potential benefits including boosting trade and foreign investment. [Extracted from the article]

Top Indian fund managers are strategizing on how to position themselves for potential inflows of up to $40 billion in India's bond market. Aditya Birla Sun Life Asset Management prefers government bonds with maturities of seven to 14 years, while Bandhan Asset favors securities that have no investment restrictions for foreigners. SBI Funds Management and ICICI Prudential Asset Management are leaning towards short-term corporate bonds that offer higher spreads over sovereign bonds. These fund managers are anticipating inclusion in global bond indexes to drive returns after the central bank dismissed the possibility of an interest-rate cut. [Extracted from the article]

The Turkish lira and government bonds have experienced a decline following a 49% increase in the minimum wage, which has raised concerns about inflation and the possibility of populist measures from President Recep Tayyip Erdogan ahead of elections. The minimum wage increase, which affects over a third of Turkey's workforce and serves as a reference for other pay agreements, was closely monitored by credit rating agencies and investors who are hoping for consistent economic policies. While recent interest rate hikes have attracted foreign investors, the lira has weakened and bond yields have risen, contrasting with the performance of other emerging markets. The upcoming local elections in March will be crucial in determining Turkey's economic policy and credibility. [Extracted from the article]

European banks are expected to focus on cost savings in 2024 as the benefits from rising interest rates reach their limit and pressure on margins increases. The squeeze on net interest margin, along with inflation-linked expense hikes, is likely to impact revenue growth and increase the need for cutbacks. A key metric called operating jaws, which measures the difference between revenue and cost growth, is expected to turn negative for 15 out of 26 European lenders in 2024. Some of the banks facing the widest negatives include SEB AB, Svenska Handelsbanken AB, and Unicredit SpA. The end of the rate tightening cycle by the Bank of England and the European Central Bank, as well as intensifying mortgage and deposit competition, are contributing to the challenges faced by banks. Investment banking may be the first area where cost-cutting measures are implemented. Several major European lenders, including Deutsche Bank AG, UBS Group AG, and Barclays, have already begun reducing roles and signaling further reductions. Barclays is set to announce new financial targets in February, including a cost-management plan for its investment bank. Uncertainty remains high in the sector despite profitability and capital strength being at decade-plus highs. [Extracted from the article]

South Africa's local-currency bonds have experienced a relief rally, generating some of the highest returns among emerging-market nations. After a period of under-performance, yields on government securities reached a post-pandemic high in September, making them the worst performers in emerging markets at the time. However, since then, they have earned 6.8% in dollar terms, outperforming the average return of developing markets. The recovery was fueled by speculation that the Federal Reserve is done hiking interest rates and was further boosted by the government's reassurance that issuance of nominal bonds would not rise. Seasonal demand for bonds and the maturity of inflation-linked bonds in December are expected to sustain the rally. The high real interest rates set by the South African Reserve Bank and attractive valuations have also supported demand for the bonds. However, the rally could stall if the government is unable to raise enough borrowing from alternative sources. Despite this, the macro environment has shifted in favor of bonds, which may attract foreign investors back to South Africa's relatively high yields. [Extracted from the article]

"The challenge is that core PCE remains almost double the Fed's 2% target, prompting the Fed to keep the possibility of another rate hike in play." (Bloomberg) -- US stocks rose on the last trading day of the quarter while a drop in Treasury yields deepened after the Federal Reserve's preferred measure of inflation increased at a slower-than-expected pace. [Extracted from the article]

(Bloomberg) -- US stock futures extended a climb and a drop in Treasury yields deepened after the Federal Reserve's preferred measure of inflation increased at a slower-than-expected pace. "The challenge is that core PCE remains almost double the Fed's 2% target, prompting the Fed to keep the possibility of another rate hike in play.". [Extracted from the article]

(Bloomberg) -- The yield on 10-year inflation-protected Treasuries exceeded 2% for the first time since 2009, extending its ascent from year-to-date lows near 1%. Longer-dated Treasury inflation-protected securities yields have risen to levels not seen in more than a decade as investors demand higher risk-free rates of return amid a resilient US economy. [Extracted from the article]

Gilts sank after the UK wage print prompted traders to add to bets on the Bank of England's terminal interest rate. In the UK, traders are once again entertaining the prospect of an outsized interest-rate hike, with money markets implying almost one-in-three odds of a half-point hike in September. (Bloomberg) -- European bonds slid on Tuesday as record UK wage-growth data buttressed the case for more interest-rate hikes, making the prospect of a long-hoped for pivot all the more elusive. [Extracted from the article]

Uruguay has already raised more than $2.6 billion from local currency bonds sold at home and abroad so far this year including a 10-year fixed-rate global bond denominated in pesos, according to finance ministry data. (Bloomberg) -- Uruguay plans to complete its $4.3 billion bond funding program this year by issuing local currency debt on the domestic capital market as slowing inflation helps the government reduce its reliance on US dollar borrowings, Finance Minister Azucena Arbeleche said in an interview. [Extracted from the article]

(Bloomberg) -- Chile is once again tapping international bond markets with a deal that hinges on lower greenhouse gas emissions and the number of women on company boards. Read more: Chilean Peso Extends Gains to 1%, Outperforms EMFX Peers Local-currency debt issued in foreign markets has picked up in popularity across Latin America in recent months as local currencies outperform and dollar borrowing costs rise. [Extracted from the article]

A normally boring corner of the UK investment market is wobbling, highlighting the potential trouble ahead for corporate debt exposed to inflation. Still, companies with high levels of floating-rate and inflation-indexed debt may end up needing the most relief, and may find themselves with few options for fixing their trouble. As central banks hike rates to tame inflation, companies have faced immediate hits in at least two ways: they're paying more interest on their floating-rate debt, and their inflation-linked obligations are growing bigger. [Extracted from the article]

The UK sells £4.25 billion of conventional and inflation-linked debt The BOE will sell long-maturity bonds from its quantitative-easing era holdings to conclude this quarter's operations --With assistance from James Hirai and Greg Ritchie. This week's dire inflation print and the BOE hike, however, could prompt investors to look beyond the potential high returns and focus instead on economic fundamentals. (Bloomberg) -- Recession alarms are ringing around Europe's bond markets, replacing the previous panic over inflation as investors come to terms with the threat to economic growth of increasingly tight monetary policy. [Extracted from the article]

The euro has rallied more than 10% from below parity against the dollar last year, on bets the ECB will press on with raising borrowing costs and narrow the interest-rate differential with the Fed. (Bloomberg) -- The euro rose and government bonds in the region fell after the European Central Bank hiked interest rates and signaled more to come. [Extracted from the article]