Market Information Tuesday 5 November 2024

Bond investors in the U.S. are navigating cautiously ahead of the presidential election and an expected 25-basis-point interest rate cut from the Federal Reserve, which would bring rates to the 4.50%-4.75% range. Although longer-duration bonds tend to perform well in a rate-cutting cycle, investors remain neutral due to election uncertainty, with volatility indicators like the MOVE index spiking to 135.18. Some investors see potential opportunities in mortgage-backed securities if rates decline. Mortgage borrowers are advised to lock in fixed rates now, as continued volatility could prompt lenders to raise rates without notice.

In the UK, Rachel Reeves’ recent Budget announcement caused an increase in government borrowing costs, with the 10-year bond yield reaching 4.52% before dropping to 4.45%. This rise reflects market concern about the government’s reliance on borrowing for new spending. Chief Secretary to the Treasury Darren Jones has reassured markets by emphasizing fiscal responsibility, with tax receipts funding public services to avoid excessive borrowing. Mortgage rates have been impacted, with lenders such as Skipton and Coventry Building Societies raising fixed rates.

Australia’s Reserve Bank (RBA) expects inflation to ease gradually, from 3.5% in Q3 to 3.4% by year-end, reaching 2.8% by late 2025. Employment is expected to grow by 2.6% before slowing, with unemployment anticipated to rise to 4.5% by 2025. Economic growth is projected to slow to 1.5% by year-end, with longer-term stability expected. Across the Tasman, New Zealand faces a tougher outlook, with the Reserve Bank of New Zealand (RBNZ) reporting rising unemployment and weak demand. High interest rates and subdued global growth are exerting pressure on households and businesses, with some firms delaying investments due to financial strain.

The 6M Euribor increased with 5 basis points to 2.91% compared to previous business day. The 10Y Swap is unchanged at 2.43% compared to previous business day.

In the attachment, today’s market data on money and capital market rates as well as other rates are presented.