Weekly fixed income review

Week to 13 November 2020

  • US government bond yields jumped on Joe Biden’s presidential election victory and Pfizer’s vaccine announcement. Following confirmation that Joe Biden had won the US presidential election, government bond yields jumped, with the 10-year Treasury yield rising to above 0.95%. The ‘risk-on’ rally in US equities saw US Treasuries sell off and yields rise, reflecting relief that a clear winner had come through after days of uncertainty, even though Donald Trump is still to concede defeat. However, it appeared that Congress would be divided, with the Republicans expected to maintain control of the Senate and the Democrats likely to have a majority in the House of Representatives. The announcement by Pfizer that its vaccine, in phase three, was 90% effective in immunisation against COVID-19 provided further impetus to the rally. Corporate credit and high yield bond prices rallied alongside equities, with corporate spreads tightening 11bp to 111bp. Energy, aerospace, travel and leisure were the best performers on the vaccine hopes. There was also a pick-up in new issuance with Westpac, Verizon Communications, and Principal Financial all issuing.

  • The UK announced that it would issue its first-ever green sovereign bonds. The UK chancellor Rishi Sunak announced that the UK government would issue green gilts to help the recovery from COVID-19 and fund the transition towards greener energy. This follows green bond issues from several European neighbours such as Germany and Holland. Additionally, the issuance of green bonds is aimed at satisfying the demand from UK pension funds for more green investments.

  • UK unemployment jumped to a near-four-year high. The three-month unemployment rate to the end of September rose to 4.8% from 4.5% in the previous month, as companies shed more staff owing to the impact on businesses from the COVID-19 pandemic and the tapering of the government’s furlough scheme. The third quarter also witnessed the highest ever increase in redundancies (314,000) since records began. Gilt yields rose, however, in line with those in other global bond markets, owing to the Biden election victory and hopes regarding the Pfizer vaccine.

  • The European Central Bank (ECB) is likely to target bond purchases and cheap loans in its much-awaited package of measures. ECB President Christine Lagarde stated that the central bank’s forthcoming stimulus package would most likely feature emergency bond purchases and cheap loans to banks, as it assesses its options faced with a second wave of the pandemic. Expectations are growing that the ECB will expand both its pandemic emergency purchase programme and targeted longer-term refinancing operations while keeping its deposit rate unchanged. Government bond yields fell back in the eurozone following the statement, having risen early in the week on the US election result and the Pfizer vaccine announcement.


Chart of the Week: 10yr German Bund yield over 12 months

Chart of the Week: 10yr German Bund yield over 12 months

Source: Bloomberg. Data as at 13 November 2020. 

Bond spreads (over govts)Week-to-date change (bp)
Bloomberg Barclays US Corporate Index 111bp -6
Bloomberg Barclays Euro Corporate Index 97bp -11
Bloomberg Barclays Sterling Non Gilts Index 112bp -5
Bloomberg Barclays US Corporate High Yield Index 412bp -30
Bloomberg Barclays Pan-European High Yield Index 387bp -39
Bond yields (10yr)
USA 0.90% +8
Germany -0.54% +9
Japan 0.03% +1
UK 0.35% +7
EquitiesWeek-to-date change
S&P 500 3,550 +1.2%
DJ Euro Stoxx 50 3,428 +7.0%
FTSE 100 6,339 +7.3%
DAX 13,053 +4.6%
Nikkei 225 25,521 +4.9%
Currencies
EUR/USD 1.18 -0.6%
JPY/USD 105.20 -1.8%
GBP/USD 1.31 -0.2%
Commodities
Brent Crude ($ per barrel) 44.27 +12.2%
WTI Crude ($ per barrel) 42.02 +13.1%
Gold ($ per ounce) 1,881.54 -3.6%

Source: Bloomberg, 13 November 2020. Prices close of business 12 November 2020.

Economic calendar

16 November: Japan industrial production
17 November: US retail sales, US industrial production
18 November: UK CPI, eurozone CPI, US housing starts
19 November: US jobless claims, Japan CPI
20 November: UK retail sales, eurozone consumer confidence index

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