Investing.com -U.S. Treasury yields held largely unchanged on Tuesday, capping a highly volatile quarter defined by a drastic repricing of Federal Reserve monetary policy and intense geopolitical crosscurrents in energy markets.
Eurozone short-dated government bond yields, meanwhile, fell on as investors positioned themselves for a barrage of economic indicators and crucial central bank speeches at the European Central Bank’s annual forum in Sintra, Portugal.
which closely tracks short-term interest rate expectations, hovered steadily near 4.12%, while held flat at 4.39%.
, which is highly sensitive to changes in ECB interest rate expectations, slipped to 2.52%. Yields move inversely to prices.
In contrast, – the benchmark for the single-currency bloc – remained largely unchanged at 2.89%, hovering near four-month lows.
Volatile quarter sees yields retrace from war-driven highs
The steadying of yields rounds out a quarter of structural shift in the fixed-income landscape. At the start of the year, financial markets were pricing in a series of rate cuts, fuelled by expectations that inflation would steadily glide back to the central bank’s 2% target.
However, that outlook underwent a complete inversion over the first half of the year. Stubborn core inflation gauges – which climbed back to 3.4% – coupled with a consistently robust labour market and resilient consumer spending, forced an aggressive macro repricing.
Instead of monetary easing, futures markets have swung to price in two interest rate hikes by the end of the year, with a growing probability that the Fed will resume its tightening cycle as early as September.
The fixed-income market was further complicated this quarter by military conflict involving Iran, which sent global crude oil and energy benchmarks soaring.
Fears of systemic supply shocks through the Strait of Hormuz briefly drove long-dated Treasury yields to multi-year highs as investors braced for severe energy-driven inflationary pressures.
Central bank rhetoric, Sintra under the microscope
Monetary policy also takes centre stage as the European Central Bank’s annual forum in Sintra, Portugal, continues.
Markets will be parsing remarks from ECB Chief Economist Philip Lane, alongside Executive Board members Isabel Schnabel and Frank Elderson, for clues on the future path of Eurozone interest rates.
Schnabel, widely regarded as the ECB’s most prominent policy hawk, has repeatedly warned against easing restrictive policy too quickly.
Her stance highlights a widening rift within the central bank as inflation pressures begin to normalize alongside stabilizing energy costs. Markets currently see at least one more rate hike by the ECB.
The three-day Sintra event will culminate in a highly anticipated policy panel featuring newly appointed Federal Reserve Chairman Kevin Warsh – marking his first major international appearance since taking the helm of the U.S. central bank – alongside Bank of England Governor Andrew Bailey and Bank of Canada Governor Tiff Macklem.
Inflation figures from France and Germany are due later today, while data for the eurozone is due on Wednesday. U.S. Job openings and labor turnover survey (JOLTS) were due at 1000 ET today, while non-farm payrolls is due on Thursday.