Over the first quarter of this year US treasury yields have ripped higher, and in doing so have also dragged government bond yields across the globe in the same direction. The higher costs are threatening to undermine an already fragile recovery, especially in Europe where countries have started to lock down again to avoid another wave of the pandemic. According to Bloomberg, as a rough estimate, every 10 basis-point move across Europe’s debt structure would translate into about EUR11bn of annual interest cost. Emerging-market nations are also starting to feel the pinch. According to estimates from the Bank for International Settlements these nations have more than USD4tn in dollar debt. The burden of this debt will bite with rising yields which could have a knock-on effect across the board.
The ECB’s President Christine Lagarde said last week that the central bank is ready to take steps to counter higher bond yields. ‘They can test us as much as they want’ she said in a Bloomberg TV interview on Wednesday, adding ‘We have exceptional circumstances to deal with at the moment and we have exceptional tools to use at the moment, and a battery of those. We will use them as and when needed in order to deliver on our mandate and deliver on our pledge to the economy’.
On Friday we had the March Non-farm Payroll numbers. The market estimates were for 650k jobs added, an unemployment rate of 6% and participation rate of 61.5%. Jobs added was 916k with both the unemployment rate and participation rate coming in on the nose.
Have a good day.