The world of fixed income investments faced significant headwinds in Q3 2023, as reflected in a roughly 4% decline in the Bloomberg Global Aggregate Bond Index, a prominent benchmark in the global fixed income market.

The hawkish pause by the Fed has sent U.S. real yields to levels not seen since 2008, triggering a market selloff in credit.

ECB may have just administered its final interest rate hike in this tightening cycle, while the Fed appears poised to hit the pause button at its upcoming meeting. This signals a potential approach to terminal rates, unless economies deliver unexpected upside surprises or inflation lingers at elevated levels longer than anticipated.

The bustling start to September, particularly in the primary market following Labor Day, has placed pressure on rates due to heightened hedging activity and on credit spreads because of new issue premiums.

A softening US labor market and a slowdown in European activity, combined with improving inflation, may pave the way for the Fed and ECB to hit the pause button on their hiking cycles.

Amidst the recent bond sell-off and with interest rates now entering a more restrictive territory for the US economy, the prospect emerges that Powell could be handed a respite, allowing him time to observe the effects of the current Fed monetary policy on the economy.

As new yield records were set this week, the resulting selloff in US Treasuries is triggering a widening of spreads.

Mixed progress on inflation (CPI, PPI), the rise in commodities prices, and the ongoing US Treasury auctions continue to exert pressure on bonds.

What a week it has been for the fixed-income market, as long-end rates surged and EM central banks initiated their easing cycle!

Central banks are diligently proceeding with their anticipated monetary policy tightening, with one exception: the Bank of Japan, which appears inclined to alter its approach to yield curve control. Despite the summer season, their commitment remains unwavering!