The Federal Reserve's latest meeting signaled an anticipated 75 bp rate cut in 2024, driving the 10-year US Treasury yield below 4% from a recent 5% high. While markets have welcomed this dovish turn, it raises concerns about potentially reigniting inflationary pressures.

In December, bond indexes are once again on the rise, extending the exceptional performance seen in November, despite a solid U.S. job report. While the end of the year seems to be proceeding smoothly, certain market events, such as the potential conclusion of the BOJ's negative interest rate policy, remain firmly in focus for 2024.

In November 2023, Global Aggregate bonds achieved their second-best performance in three decades, driven by lower growth expectations and reduced inflation. However, this outstanding performance is not without challenges, including persistent rate volatility, a deeply inverted yield curve, and a term premium in negative territory.

The past week in fixed income was marked by a notable reduction in volatility, attributed in part to the Thanksgiving break. While rates experienced a modest uptick, the high beta credit (including CoCo bonds) segment emerged as an outperformer.

Fixed income investments thrived this week, benefiting from the perfect cocktail of a larger-than-expected decline in US inflation and a significant deterioration in the job market, marked by higher-than-anticipated US initial jobless claims.

The US fixed income market witnessed some volatility this week, fueled by both supply factors and comments from the Fed. The US Treasuries yield curve concluded the week flatter by 15bps, indicating that the fight against inflation is still not ”close” to being done!

The reduction of short-term uncertainties—Fed decisions, the Quarterly US Treasury issuance program, and the BoJ—alongside worsening US economic and job data, has swiftly taken the edge off the October yield surge!

In Europe, the ECB has taken a pause in its rate-hiking spree for the first time since July 2022. All eyes are now on the upcoming monetary policy decisions from the Fed and the BoJ next week.

Alarm bells are ringing in the world of fixed income as the 10-year nominal US Treasury yield skyrockets to 5%. This level hasn't been seen since July 2007, setting off concerns and reactions across financial markets.

The escalation of geopolitical tensions has the potential to impact global inflation, while the current prevalence of restrictive monetary policies worldwide is anticipated to affect global growth in the coming months.