December had bond equity correlation flipping positive again, highlighting fragility in the system. 10y UST yields rose 40bps as fears of a US slowdown abated with a solid NFP report, backed up by robust retail sales. The nail in the coffin was the December Fed meeting delivering the expected 25bp cut but trimming their median dot plot for 2025 to only 2 cuts from a previous 4. This dragged up yields across all maturities and steepened the curve. The higher yields continued to strengthen the USD and knock on effects increased debt servicing costs everywhere, notably in the UK with its limited fiscal headroom. Elsewhere German Chancellor Scholz lost a no-confidence vote triggering an election on 23rd February 2025. Continued aggressive tariff talk by Trump keeps investors on their toes, along with a new Department of Government Efficiency (Doge) headed by billionaire Musk.
A busy month for G10 Central banks with Canada and Switzerland cutting 50, and US, Europe and Sweden doing 25bp. Despite some bluster, the BoJ failed to deliver a hike.
The US 10y closed the month 40bps higher and 5s-30s swap was 5 bps steeper.
