OTP Morning Brief: Bond yields at new highs in advanced economies
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OTP Morning Brief: The S&P pulled back from its record high on Friday, but ended the week in positive territory
European stocks closed slightly lower on Friday, snapping a four-week winning streak. The BUX presented a much more positive picture in terms of its weekly performance. The eurozone economy expanded by 0.4% quarter-on-quarter in Q2, supported by Spain’s outstanding performance. Major US indices also closed lower on Friday, but the week was largely positive overall. Investor sentiment continued to be weighed down by uncertainty in the Middle East and elevated oil prices. US Treasury yields rose and the dollar weakened following weaker-than-expected retail sales data. Japan's Q2 GDP growth fell short of expectations, while Asian equity markets moved higher. August purchasing managers' indices are due for release this week.
OTP Morning Brief: US rate cut expectations declined further despite the favorable producer price index data
The favorable July producer price index data led to a further decline in US rate cut expectations on Thursday. Markets are now pricing in a Fed rate cut only in December. Declining rate cut expectations provided a boost to US equities, with the technology-heavy Nasdaq posting the strongest gains among the major indices. Sandisk shares surged 13.7%. In Europe, major stock indices moved only modestly, with the STOXX 600 remaining broadly flat. The favorable US CPI data led to a decline in developed market government bond yields. Today, the second estimate of eurozone Q2 GDP is due for release, while additional July retail sales data will be published in the US.
Moderate rise in Western Europe. Wall Street indices fell by 0.7–0.8% on Tuesday. Yields continued to rise across developed bond markets. The 10-year US yield is approaching 4.7%, while the 30-year stands near 5.2%. A European Commission negotiating delegation arrived in Budapest to discuss the release of EU funds. This morning, the Hungarian Central Statistical Office (KSH) will publish data on March earnings. Investors are watching Nvidia’s report.
Moderate rise in Western Europe
On Tuesday, the STOXX 600 rose by 0.2%, while the DAX closed 0.4% higher. The CAC 40 and the FTSE 100 were broadly flat. Reflecting caution, defensive sectors led the gains, with both the food & beverage and healthcare indices increasing by more than 1.5%. Oil prices declined by around 1%, with Brent still remaining above USD 110 per barrel.
European semiconductor stocks gave back part of their recent gains: Infineon fell by more than 2.5%, while ASMI declined by over 1%. In contrast, among software companies, SAP surged by 6%, and Dassault Systemes rose by 2.8%. Lagercrantz surged 8.2% after the Swedish industrial holding reported fourth-quarter results that exceeded expectations. Saab advanced 4.4% as Sweden is expected to purchase naval frigates worth more than USD 4 billion from France, capable of integrating the company’s weapon systems. Germany’s Hensoldt and Rheinmetall closed up by 8.2% and 3%, respectively.
In the United Kingdom, the unemployment rate rose to 5% in March, instead of the expected stagnation, coming in 0.1 percentage points above the analyst consensus.
On Monday, a European Commission negotiating delegation arrived in Budapest. During the week, talks will be held with the government on the release of EU funds. Given the August 31 deadline, the Recovery and Resilience Facility (RRF) and REPowerEU funds (EUR 6.5 billion in grants and EUR 3.9 billion in concessional loans) are likely to be the most urgent issues.
In the region, Poland’s WIG20 fell by 1.6%. The BUX declined by 0.2%, while the Czech PX50 rose by 0.2%.
Equity indices fell overseas
The major US indices fell by 0.6–0.8% on Tuesday. Technology and communication services were the main drags on performance. Similarly to Europe, defensive sectors – including healthcare – held up better.
In recent periods, interest rate expectations in the US have shifted higher. Based on market pricing – according to FedWatch data – not only have rate cut expectations towards the Fed been fully priced out by the end of 2027, but the market is already pricing in a 25 basis point hike by early 2027. Rising rate expectations could put increased pressure on technology stocks whose valuations rely heavily on more distant future cash flows. A key question is how the new central bank chair, Kevin Warsh—known for his more orthodox stance and support for balance sheet tightening—will balance his own views with President Donald Trump’s expectations for rate cuts. Meanwhile, no clear resolution is emerging regarding the conflict with Iran, which is fuelling CPI concerns. Bond markets have responded with rising yields, while the tech-heavy Nasdaq Composite underperformed on Wall Street.
Pending home sales rose by 1.4% month-on-month, coming in above expectations. At the same time, rising mortgage rates—driven by the conflict with Iran—are weighing on the US housing market. The average rate on a 30-year fixed mortgage increased from 5.98% before the war to above 6.3%.
Yields continued to rise across developed bond markets
Yields continued to rise across developed bond markets, as the Strait of Hormuz remains closed, intensifying physical oil shortages and rising CPI pressures. The 10-year US yield is approaching 4.7%, while the 30-year stands near 5.2%, the latter close to a two-decade high. Germany’s 10-year government bond yield increased more moderately but is nearing 3.2%, its highest level in the past 15 years. Amid the negative sentiment, the dollar strengthened notably by 0.5%, reaching around 1.16 against the euro.
The forint weakened by 0.3% against the euro, slipping below the 362 level, while the zloty lost 0.2% and the koruna declined by 0.1%. Government Debt Management Agency (ÁKK) reference yields, recorded in the early afternoon, fell by 6–8 basis points, with the 10-year dropping to 5.6%, although yields started to rise again by the evening. At the three-month T-bill auction, HUF 40 billion worth of securities were sold amid solid demand, with an average yield of 5.7%.
Today, the Government Debt Management Agency (ÁKK) will offer HUF 30 billion in six-month T-bills, while proposing HUF 15–15 billion of 2033/C and 2038/A bonds at switch auctions in exchange for securities maturing this year and next.
Today's highlights
Heading into the close, Japan’s Nikkei is down 1.3%, while Korea’s KOSPI is falling by 2.9%. The SSEC is lower by 0.5%, and the Hang Seng is down 0.6%.
Today, April CPI data is due from the United Kingdom. In Hungary, the Hungarian Central Statistical Office (KSH) will publish figures on March earnings. Among quarterly corporate releases, Nvidia’s results are likely to attract the most attention.
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