Investment planning; US Treasury bond yields and more.

• US Treasury bond yields on the up
• Latest UK property statistics show an increase in the number of transactions in the past month

US Treasury bond yields on the up

(AF4, FA7, LP2, RO2)

The path of US 10-Year Treasury Bonds is worth watching.

We commented recently that over the year the yield on the benchmark US Treasury 10-Year Bond had more than halved, from 1.919% at the pre-pandemic start of the year to 0.917% at the end. The low point was 0.502%, hit on 9 March, as COVID-19 became a reality. That occurred shortly before the Federal Reserve was forced to step in when a liquidity crunch drove yields back above 1%. By early August and a Summer dip in infections, the 10-year yield was down to 0.512%. Just over five months later, on 6 January, it had risen to 1.039%, the first time it had been above the 1% level since late March.

You might have difficulty finding an ‘Interest rates double’ headline, particularly as the USA has generated other more dramatic news in early January, but the move in US T-bonds yields is significant. Many commentators pinned the jump above 1% on the results of the two Senate run-off elections in Georgia. These meant that the new US senate would have a 50/50 Republican/Democrat split, with the casting vote going to the Democratic Vice-President, Kamala Harris. Democrats will thus control all three arms of the US Government – Presidency, House of Representatives and the Senate – the so-called Blue Wave.

Since the presidential election in early November, the US market had been generally assuming that the Georgia vote would maintain a Republican majority, enabling the Republican head of the Senate, Mitch McConnell, to block most, if not all, of President Biden’s proposed legislation. With that piece of the US checks and balance process removed, the markets are now contemplating what a relatively unconstrained Biden programme will look like.

One near certainty is that there will be further fiscal stimulus on top of the measures signed off by Donald Trump at the end of last year. The $600 direct payments are set to grow to the $2,000 which McConnell had previously blocked. The additional stimulus will translate into more US Government borrowing, and, potentially, an uptick in inflation from increased demand – hence the higher T-Bond yield.

One of the questions that regularly arises is what could make interest rates rise? The events across the Atlantic offer two possible answers: higher inflation and the sheer weight of bond issuance. For sure, the central banks will do all they can to keep rates down, but, as we have remarked before, they are running out of ammunition. Interestingly, a recent survey run by the FT of 18 large gilt market players found that ‘the overwhelming majority’ considered the current round of quantitative easing (QE) to be designed to meet the Government’s financing requirements rather than as any exercise in monetary policy. When a central bank’s credibility is low, it has less power over the bond markets.  

Source: Investing.com. 7/1/21 FT 5/1/21

Latest UK property statistics show an increase in the number of transactions in the past month

(AF4, FA7, LP2, RO2)

The latest property statistics provide UK residential and non-residential transactions estimates during the previous 12 months.  The figures show the provisional seasonally adjusted and non-seasonally adjusted UK residential transactions estimates have both increased in November 2020 compared to November 2019.

As can be seen, UK residential transactions remained relatively stable between November 2019 and March 2020. While there were substantial decreases in April and May 2020, UK residential transactions have since increased each month, reflecting the gradual easing of coronavirus public health restrictions for the property market.
The figures also show that the provisional non-seasonally adjusted estimate of UK residential transactions in November 2020 is the highest transactions total during the previous 10 years. This increase is likely to be as a result of the nil rate band for Stamp Duty Land Tax (SDLT) being increased by £500,000 until 31 March 2021.

Source: HMRC National Statistics: Monthly property transactions completed in the UK with a value of £40,000 or above – dated 22 December 2020.  (https://www.gov.uk/government/publications/monthly-property-transactions-completed-in-the-uk-with-value-40000-or-above/uk-monthly-property-transactions-commentary)