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!

This week witnessed a stable fixed income market, marked by lower rate volatility and flat performance, all leading up to a significant week ahead. The Federal Reserve, Bank of Japan, and European Central Bank are set to deliver their latest decisions on monetary policies.

US Treasuries experienced their largest weekly inflows in 16 weeks, totaling $16 billion, as the release of CPI data prompted short sellers to cover their positions. The price action was significant, resulting in a 1.5% gain for US Treasuries bonds, making it one of the best weeks in 2023.

This week witnessed the clearance of major resistances in the bond market, as the 2-year US Treasury yield surpassed 5%, while the 10-year and 30-year yields rose above 4%.

This week, central bank officials delivered a strong and unified hawkish message, signaling the likelihood of higher interest rates for an extended period.