Investment Institute

Fever Breaking

  • 06 November 2023 (7 min read)

The Fed message, a tweak in debt issuance and soft payroll combined to take US long-term yields down. The fiscal trajectory remains a major hurdle though.

Good news on inflation and bad news on growth and employment are playing for the doves at the ECB, but the hawks are not giving up.

10-year yields have significantly retreated in the US last week, in reaction to a near-perfect combination. The message from Jay Powell was that, while the Fed’s tightening bias is still there, the bar for another hike is rising. The Treasury announced a tweak in the maturity distribution of its issuance in the next three months towards the front end of the curve. And, finally, the payroll data for October came out of the soft side, with below-trend job creation, a small rise in the unemployment rate and crucially, a further deceleration in wages.

While we might have seen the recent bond market fever breaking, there are limits to the yield retracement. Now that the Fed has explicitly acknowledged the impact of the market-driven tightening in financial conditions in the calibration of its own stance, symmetrically if market rates fall too fast or too far, then the probability the Fed is ultimately forced to hike again would rise. Of course, this would not be needed if the economy continues to soften – and Q4 may well come out as a mediocre quarter. Yet, beyond the cyclical factors, fundamental forces still need to be considered. The Treasury can momentarily ease the pressure on long-term yields by issuing more bills and 2-year notes, but the fact remains that the overall quantum of federal debt will continue to rise, without any clear perspective on a subsequent fiscal consolidation. The behaviour of Japanese investors also needs to be monitored in the light of yet another tweak in the BOJ’s Yield Curve Control.

In the Euro area, the October print confirmed that disinflation is in motion, beyond the mechanical base effects on energy and food. The deceleration in the prices of both manufactured goods and services – albeit more timidly for the latter – is reassuring. The cost of this disinflation is getting plainer to see unfortunately: the labour market is softening, even if the deterioration remains contained for now. The ECB hawks have not given up though, and we review here Isabel Schnabel’s latest speech.

Download full article
Download report (586.89 KB)

Related Articles


Changing of the Guards


France: political uncertainty to persist


Looking for some Glue


    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.  No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ
    In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    Back to top