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Global bond yields mixed amid new tariffs, central bank action


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Global bond yields mixed amid new tariffs, central bank action

Yields for 10-year sovereign debt have been mixed in the world's 15 largest economies as several rounds of new tariffs have begun taking effect.

Eight of those countries saw increases in their 10-year yields from June 27 to July 27, while seven saw declines.

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Brazil, where bond yields had spiked earlier in the summer, saw a sharp drop in 10-year government bond yields, which fell 87 basis points to 10.88%. The International Monetary Fund recently downgraded its 2018 growth outlook for Brazil, trimming its expectations by 0.5 percentage points to 1.8%. The IMF has encouraged Brazil to undertake fiscal reforms to boost economic growth and keep its public debt levels in check.

The movements in global bond yields also come as investors react to a changing landscape among central banks, which are pressing on with removing monetary stimulus from their economies or at least discussing potential shifts from their postcrisis programs.

Leading the way on that front has been the U.S. Federal Reserve, whose monetary policy committee is meeting July 31 and Aug. 1. The Fed is expected to keep its benchmark federal funds rate flat, and it is continuing with its effort to trim its balance sheet, which had swelled to approximately $4.5 trillion after the crisis.

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Meanwhile, the European Central Bank is getting underway with dialing back its quantitative easing program, planning to halve its monthly asset purchases to €15 billion per month in the fourth quarter and then end the program at the close of 2018. Bank of England officials have also begun talking about the conditions under which it would begin unwinding its QE program.

And although they are at a much earlier stage, similar debates are starting at the Bank of Japan, where reports have swirled over potential minor changes to its bond-buying program. Japan's 10-year bond yields rose to 0.10% as of July 27, up 7 basis points from June 27.

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Yields for 10-year U.S. Treasurys increased 13 basis points over that period, rising to 2.96%. The U.S. has been at the forefront of global uncertainty around trade policy, given the country's addition of tariffs on steel and aluminum imports and an additional set of levies on some Chinese imports.

China's 10-year bond yields ticked down 3 basis points to 3.53% during the period. The Chinese economy is growing at a slower pace, prompting recent moves from the People's Bank of China to pump money into the economy.

In Mexico, where President-elect Andrés Manuel López Obrador won a landslide election July 1, yields for 10-year bonds gained 4 basis points to 7.71%. Meanwhile, yields for 10-year Canadian bonds added 20 basis points to 2.29%. The Bank of Canada increased its key interest rate this month despite growing uncertainties on trade.

Meanwhile, trade tensions between the U.S. and the EU eased July 25, as both sides agreed to impose no new tariffs as they discuss a broader trade deal.

Germany's 10-year bonds yields increased 8 basis points to 0.40% over the period, while France and Spain saw slight declines. Italy, which earlier this year faced a bond sell-off amid political turmoil, saw its 10-year bond yields fall 8 basis points to 2.73%. Meanwhile, UK 10-year yields rose by 3 basis points to 1.28%, while Russian 10-year yields ticked up by 1 basis point to 7.77%.

South Korea's 10-year yields ticked down 1 basis point to 2.58%, while Australia's added 2 basis points to 2.65%.