Fixed Income

June 22, 2021

The major driver for the fixed income universe last week was the rise in US Treasury yields, as market participants began betting that the Federal Reserve will act to clamp down on inflation pressures. The yield for the benchmark 10-year US Treasury moved back up to near 1.5%, although it remains below its local spring peak near 1.7%. In the last 5 years, the 10-year US Treasury yield peaked at 3.25% in 2018 (pre-COVID) and bottomed at 0.52% in mid-2020 amid the Fed’s massive support of the bond market. Quotes for Ukrainian Eurobonds declined to reflect the higher projected risk-free rate. Ukraine-28s decreased in value by 1.5% to 119.0 (6.6% YtM) and the medium-term benchmark Ukraine-26s slipped by 1.2% to 110.7 (5.3% YtM). The VRI derivatives (linked to Ukraine’s future GDP growth with expiration in 2040) showed a resistance to the correction, inching up by 0.2% to 117.9 cents on the dollar.