Daily Spotlight: Global Yields Offer Wide Options, U.S. Bonds Retreat

Summary

The benchmark U.S. 10-year Treasury bond yield is hovering near 4.5%. The yield tipped over the key 5% threshold in mid-October, its highest rate in nearly 16 years, before retreating to current levels. The retreat is now the interesting part. Generally, economists are forecasting that the Federal Reserve has finished raising interest rates for this monetary tightening cycle. But there’s still lots of uncertainty about when the fed funds rate might start to come down. Argus Fed Watcher Kevin Heal projects the second half of 2024. The U.K. is seeing a similar trend. The UK’s 10-year benchmark bond yield is at 4.3%. Sentiment there is also growing that rates might be elevated for longer than initially expected, as the U.K. has experienced rampant inflation in the past year. Around the globe, political uncertainty in South Africa and Brazil are keeping sovereign-debt interest rates above 10%. Russian debt is above 12%, up 300 basis points from a year ago, as the conflict with Ukraine drags on. At the other extreme among the biggest nations, yields for Japanese debt remain low at 0.8%. From a portfolio perspective, we would avoid over-weighting foreign-government fixed-income securities at this time given their volatile yields, sovereign risks, and repatriation issues.

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