Fed Rate Expectations Lift Sovereign Yields


Archived Article

This article was correct at the time of publishing however the information contained within it will no longer be current. It may also no longer reflect our views on this topic.


Fed Rate Expectations Lift Sovereign Yields

Sovereign yields rallied on both sides of the Atlantic as investors reassessed the likely timing of interest rates in the US. Last week’s Federal Reserve policy meeting yielded no immediate changes with the benchmark rate kept close to zero. However, more members of the Bank’s policy committee now see the first rate risk taking place next year; back in June, the slight majority saw that move happening in 2023. Fed Chairman Jerome Powell states in his post meeting conference that the Bank is getting close to achieving its goals on both inflation and employment and that the time to begin reducing policy accommodation is fast approaching[1].

Whilst sovereign yields in both the US and UK ultimately concluded the week higher, it was another volatile week with ongoing concerns relating to the property crisis in China pushing yields lower in early week trading. By the end of the week, the 10-year US treasury had posted a weekly rise of 9 basis points (bps) to 1.46% with the UK gilt equivalent rising by 7bps to 0.92%. In the Eurozone, the 10-year EU benchmark increased by 5bps -0.26% as it inched closer to positive territory.

Moving to equities, global indices bounced back from some early week weakness to record modest gains. The S&P500 rose by +0.5% with the financial sector benefitting from the sharp rise in longer-term bond yields[2]. In the UK, the FTSE100 rose by +1.3% with the mid-cap FTSE250 declining by a modest -0.2%. Meanwhile on the Continent, the French CAC40 and German DAX30 rose by +1.0% and +3.0% respectively. Japanese equities retreated with the Nikkei 225 falling by -0.8% during what was a volatile, holiday shortened week.

In the commodity markets, oil prices declined slightly for the week despite briefly hitting a two month high on Thursday. Brent crude closed the week at $75.23 a barrel, a decline of -0.4% over the previous Friday. Elsewhere, copper prices inched higher to $9,344 a tonne after a weekly rise of +0.4% whilst gold was largely flat at $1,752 an ounce.


Week Ahead

It’s a busy week for US macro data releases, kicked off by the latest durable goods orders on Monday. Final Q2’21 GDP is published on Thursday whilst the Institute for Supply Management also releases its PMI equivalents throughout the week. Revised second quarter GDP data is also due from the UK this week alongside the latest consumer borrowing report from the Bank of England. PMI data for the manufacturing index is due on Friday.

In the Eurozone, CPI inflation and unemployment are amongst the standout figures released on the Continent this week alongside the latest PMI numbers, both country specific and EU wide. China also releases PMI figures this week with both official and those from media group Caixin published during the early hours of Thursday morning. As for Japan, there are a number of headline releases to keep an eye on including industrial production, retail sales and unemployment. [3]


Read last week's market update

Chinese Stocks Slip Further on Weak Data and Evergrande Concerns



[1] Federal Reserve - Press Release - 22.09.21

[2] T. Rowe Price - 24.09.21

[3] Forex Factory - 26.09.21


The value of an investment may fall as well as rise. You may get back less than the amount invested.

The value of investments may fall as well as rise purely on account of exchange rate fluctuations.

Past performance is not indicative of future performance.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2021. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

© S&P Dow Jones LLC 2021. All rights reserved.

The information contained does not constitute investment advice. It is not intended to state, indicate or imply that current or past results are indicative of future results or expectations.

Full advice should be taken to evaluate the risks, consequences and suitability of any prospective investment. Opinions provided are subject to change in the future as they may be influenced by changes in regulation or market conditions. Where the opinions of third parties are offered, these may not necessarily reflect those of Rowan Dartington.

Rowan Dartington is part of the St. James’s Place Wealth Management Group. Rowan Dartington & Co. Limited is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales No. 02752304 at St. James’s Place House, 1 Tetbury Road, Cirencester, England, GL7 1FP, United Kingdom.