Weekly U.S. Bond Market Recap Ending Dec 12 2014
Longer-maturity Treasuries rally
Ongoing worries about slowing global economic growth, coupled with increasing political uncertainty in Greece, helped fuel a rally in longer-term U.S. Treasuries. The yields on the 10- and 30-year Treasury securities reached 18-month lows. However, a strong November retail sales report, released on Thursday, resulted in some selling pressure on shorter-maturity Treasuries, which would experience the most significant negative price effects from a Federal Reserve rate increase.
Core eurozone sovereign bond yields reach record lows
The results of the European Central Bank's latest auction of inexpensive loans to banks through its targeted longer-term refinancing operation disappointed investors, improving the odds that the central bank will expand its bond purchase program to include corporate and sovereign debt. Yields on core eurozone sovereign bonds decreased to record lows on the news. However, the yield on the Greek 10-year government note increased above 9% after the country's government called for a presidential election in December-two months earlier than originally planned.
Commodities weakness drags high yield bonds down
The continuing fall in the prices of oil and other commodities dragged down the high yield bond market, where energy-related issuers account for a large proportion of most benchmark indexes. Mark Vaselkiv, portfolio manager of the T. Rowe Price High Yield Fund, anticipates that the high yield default rate will remain below 2% next year. However, he anticipates a spike in the default rate in 2016 if the price of oil falls further or stays at current levels for an extended period.
Russian rate increase can't stop ruble's decline
Emerging markets bonds lost ground amid the generally weaker economic news from around the globe. Russia's central bank raised interest rates by one percentage point in an effort to stem the decline in the ruble. However, the rate increase-the bank's fifth this year-was not enough to stop the currency's drop as the ruble reached a record low against the U.S. dollar. Chinese corporate bonds dropped sharply after China's government banned the use of lower-rated corporate debt as collateral to borrow cash.