The week witnessed surprising moves by central banks (Norges, BoE), driven by persistent concerns over inflation.

FOMC decisions and US CPI could set the tone for this summer. Currently, the 10-year yield is below the channel line at around 3.80%, but if it rises above this level, risks will start to shift to the upside on rates.

In the United States, May experienced a notable increase in yields, with an average rise of 25 bps. This rise was supported by the extension of the US debt ceiling, which mitigated a significant downside risk to the growth outlook.

The potential resolution of the debt ceiling issue and the release of key economic indicators, such as inflation and unemployment figures, further intensified pressure on government bonds, causing them to decline by over 2% in May.

The past week proved challenging for U.S. Treasury bonds, which experienced a decline of -1.4% due to progress made in debt ceiling talks. The 2-year U.S. Treasury yield saw a significant increase of nearly 30bps, marking its largest weekly rise since June 2022.

US Treasury yields increased slightly during the week, as progress in the U.S. Consumer Price Index (CPI) and worsening initial claims were not enough to offset the highest level (3.2%) in the University of Michigan's long-term inflation survey since 2011.

In the US, Treasuries erased almost all of their weekly gains on Friday after the release of strong economic data (employment and wages).

In the US, the dichotomy between what the market expects, a further hike (25 basis points) and then the end of the Fed's tightening cycle, and what the Fed continues to send out as a message, that rates will have to remain high for an extended period of time, will continue to drive the markets this week.

The traditional debt ceiling issue seems to be of greater concern this time around than in previous episodes, as the 1-year U.S. CDS exceeded 100 bps for the first time, while the difference between 1-month and 3-month Treasury yields reached nearly 2%.

The sharp rise in global rates had a negative impact on the performance of credit indices