Biggest two-month rally in decades rescues beaten-up bond markets
By Harry Robertson
LONDON (Reuters) — A huge two-month rally in bond prices, powered by expectations that central banks will soon be cutting interest rates, has rescued fixed income markets from an almost unheard-of third straight year of declines.
The U.S. 10-year Treasury yield, the benchmark for borrowing costs globally, has dropped 50 basis points (bps) in December after falling 53 bps in November. Its two-month fall is the biggest since 2008, when the Federal Reserve was slashing rates during the global financial crisis.
ICE BofA's global broad bond market index, which includes government and corporate debt, has rallied roughly 7% over the last two months — its strongest eight-week period on record, according to LSEG data which goes back to 1997.
The sharp drop in yields, which move inversely to prices, has eased pressure on companies and households as well as housing markets and governments that in October faced the steepest borrowing costs in more than a decade.
It has also been a balm for highly indebted countries such as Italy, where bond yields are poised for their biggest monthly fall since 2013.
HAWKS TURN DOVISH
Central bankers abruptly changed their tone on inflation in December, fuelling investors' rate-cut bets. That followed a blockbuster November, when data showed U.S. and European inflation falling much faster than expected.
«We were surprised by the strength of this rally,» said Oliver Eichmann, head of European fixed income at asset manager DWS.
The Fed's Christopher Waller and the European Central Bank's Isabel Schnabel, both previously renowned monetary policy hawks, softened their language in December and acknowledged — in Schnabel's words — a «remarkable» fall in inflation.
The Fed triggered
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