Bond Market Insights - Wed, 19 Feb 2025

Bond Market Insights - Wed 19 Feb 2025

U.S. Treasury yields climbed higher on Tuesday, reversing Friday’s retail sales-driven gains, as supply concerns and corporate issuance pressured the market. After trading within a narrow range in the morning, Treasuries faced renewed selling pressure in the afternoon amid a flood of investment grade bond offerings. A total of 18 IG corporate deals came to market, amounting to approximately $31 billion in issuance.

The 10yr Treasury yields rose to 4.55%, up 10bps from Friday’s post-retail sales lows. The curve remains under pressure, 5yrs closing at 4.395%.

What’s priced in for the US market? Dec 25 OIS forwards bounced to 3.995% which implies around 34bps of rate cuts this year.

European bond markets remained under pressure amid expectations of increased sovereign issuance to fund higher defence spending.

Meanwhile, in the UK, labour market data surprised to the upside, with employment rising by 107,000 over the past three months, well above the consensus of 48,000. Unemployment held steady at 4.4%, defying expectations for an uptick. Wage growth was also stronger than expected at 6.0% y/y, slightly above the 5.9% forecast. Bank of England Governor Andrew Bailey downplayed the data, stating that wage growth was “not as much” as the BoE had expected, suggesting the central bank remains cautious in signalling rate cuts.

The Reserve Bank of Australia (RBA) lowered its cash rate by 25 basis points to 4.1%, in line with market expectations. However, the central bank’s forward guidance was notably hawkish, signalling continued caution on inflation risks. This stance contrasts with market pricing, which still anticipates a total of three more 25bp rate cuts in May, August, and November, bringing the year-end cash rate to 3.35%.

Looking ahead, market participants will focus on upcoming FOMC minutes, U.S. jobless claims, and additional corporate issuance trends for further insight into how financial conditions are evolving. With bond markets reacting strongly to supply pressures and shifting rate expectations, volatility is likely to persist in the near term.