Market-watchers are parsing the Federal Reserve’s every word for clues about where bond yields are headed, but the European Central Bank (ECB) may be in the driver’s seat.
“Monetary policy development in the euro zone remains a critical factor in projecting the forward path of global long-term bond yields, especially since quantitative easing appears forthcoming,” DBS said in a note Wednesday. It noted that global 10-year government bond yields have largely trended downward this year, with the biggest declines coming from euro zone economies.
“Even as the market expects U.S. [interest rate] hikes to draw closer, the decline in 10-year yields across the developed world has dragged down 10-year Treasury yields,” it said.
The U.S. stock markets rallied to record highs this week, but while that would traditionally signal an exit from safe-haven assets such as Treasurys, yields barely budged — even as Fed chief Janet Yellen made slightly more hawkish comments at the Jackson Hole meeting of central bankers last week.