Government bond prices were falling in the United States, as investors considered geopolitical tensions, for example.
The market rate of the US ten-year government bond was 0.6 percentage points higher at 4.40 percent, and the two-year interest rate was 0.9 percentage points higher at 4.29 percent.
In Europe, for example, the German ten-year market rate was 0.9 percentage points higher at 2.34 percent, while the two-year was 0.3 percentage points lower at 2.34 percent.
Yesterday, the stock market took a hit, as investors were affected by increasing tensions over the long-fearing war in Ukraine. At the same time, money flowed into items considered safe havens, such as government bonds.
Today, the United States closed its embassy in the Ukrainian capital, Kyiv, and warned of a potential and significant airstrike.
Market rate (current yield): Describes the annual return. When the price of the loan paper decreases, the market interest rate rises, when the price of the loan paper increases, the market interest rate decreases.
Bond: An investor buys a 1,000 euro bond with an annual coupon rate of 2.0 percent. The market interest rate is (20/1000) 2.0 percent.
Example: The investor sells the loan to another investor for 1100 euros, which means the price goes up. The return level of the new investor is no longer 2.0 percent, because he bought the loan at a higher price, but receives the same coupon rate. The new market rate is (20/1100) approximately 1.8 percent.
The dollar is getting stronger
There were relatively strong movements in the currency market, especially in the US dollar. For example, the dollar strengthened against the euro by 0.6 percent and against the Japanese yen by 0.3 percent.
The euro fetched $1.0531, while at the beginning of November it fetched $1.0834. The dollar has weakened a bit in the last day, but after the elections in early November, the trend has basically been in the other direction.
Investors are watching the president closely Donald Trump’s the formation of the administration and especially the election of the Minister of Finance.
If Trump implements his plans for, for example, significant tax cuts and increases in customs duties, it could accelerate inflation.
The rise in prices could slow down the pace of monetary policy easing by the US central bank, the Fed, which in turn supports the dollar. Relatively higher interest rates make government bonds more attractive, which require local currency to purchase.
Source: www.arvopaperi.fi
