Yields at Multi-Decade Highs & Euro Retests 17-month Low
For fixed income, longer-dated bond yields continue to trade at levels not seen in decades across many DM economies. In the US, 10s are around 5.3% – not seen since 2002. In the UK, the 30-year Gilt yield hit north of 6%, its highest since 1998, and we saw 4.92% on French 10s, with the OATs-Bund spread blowing out again to 140 bps. EUR/USD also slid to $1.1165 yesterday, retesting 17-month lows, with US$1.1112 considered the next support target.
For me, this is not just an inflation panic driving borrowing costs higher; breakeven rates are rising but still below their highs. Real yields appear to be doing the work, and they are currently circling 3%; this suggests investors expect robust growth. The issue is the rising term premium, which, if it continues to increase, could eventually hurt stocks. In other words, investors are asking for more compensation because they feel less sure about the long-term outlook.
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