Fixed Income Update - Global Bond Markets

  December 9, 2015

The U.S. Treasury canceled an auction of 2-year Treasury notes in October, due to debt ceiling constraints that became an issue during the month. During the 2013 debt ceiling stalemate, Treasury auctions saw incredibly low demand as the fear of default loomed throughout the markets.

The Treasury has argued that raising the debt ceiling is critical to the ongoing functionality of the government debt market. Investment grade corporate bond yields rose
relative to U.S. government Treasury bonds over the past month. Bond prices move inversely to yields, so as yields rise, prices fall. The U.S. Treasury sold 3-month Treasury
bills at a 0.0% yield for the first time ever in October. Even though 3-month Treasury bills have previously traded at below a 0.0% yield, they had never been sold at zero directly by the Treasury. Internationally, the credit rating agency of Standard & Poor’s downgraded the debt of Saudi Arabia citing a growing deficit, falling revenue, and a dismal outlook as detailed in an IMF report. The onslaught of low oil prices is the culprit that has caused the nation’s dire circumstances.

Sources: U.S. Treasury, Bloomberg, S&P

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