Update : 02/10/2025 - 03:10 am GMT
NOTE :
Last week, there was a coding error that led to an incorrect level for the new 30-year futures spread against the 5-year and the reference for the 30-year future that we presented. We have corrected the error, and the correct future and spread level are now on line.
Memento

US Bond Market
The US yield curve has flattened, driven by a rise in 2-year yields and a decline in long-term yields, with a particularly sharp decline for the 30-year maturity.
The rise in the 2-year yield does not appear to be driven by inflation concerns. Although inflation remains a growing factor in the evolution of this rate, its influence has eroded slightly this week. The absence of anticipation of a strong economic expansion suggests that this rise is purely technical. It could be linked to adjustments due to the new benchmark bond or to the recent increase in the term basis, which could reflect a liquidity problem.
For long-term maturities, the decline in rates seems more linked to a decrease in the term premium than to a change in inflation expectations. While inflation plays an increasing role in the formation of the 10-year rate, it is not the main driver. In addition, the recent statements by Treasury Secretary S. Bessent, expressing a desire to lower long-term rates, particularly at 10 years, may have had an impact, even if these yields remain largely influenced by market forces. Contrary to D. Trump’s assertions, keeping key rates unchanged does not lower long-term yields. If long-term yields fall and move closer to the cost of financing, the carry trade opportunity becomes less attractive, reducing capital inflows into long-term bonds and thus limiting the downward pressure on their yields.
In this context, the announcement of the future borrowing strategy does not signal any change compared to the previous administration. It continues to favor the issuance of Treasury bills over long-term bonds, in line with the stated objective of lowering long-term yields.
Minor tensions in the REPO market have remained constant without intensifying. Upcoming issuances are not expected to impact liquidity until the end of the month.
As of today, SOFR futures and bills do not anticipate any rate cuts for March meeting. This aligns with an overall expectation of a cumulative 25 basis point rate reduction by the end of September 2025
Volatility (HV)
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Trend |
Historical level |
Risk of violent variation |
Move Index (IV) |
HV - Move Ind. (IV) |
Long-term |
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High |
High |
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Short-term |
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Median |
This week, the US bond market is showing higher volatility (HV) than its European counterpart.
Volatility (HV) has increased across all maturities of the curve, with a notable increase in long maturities, making the 30-year the most volatile.
Although the overall market's long-term volatility (HV) remains in a downward trend, the rebound in short-term volatility (HV) will slow this decline. This movement will generate more pronounced volatility (HV) spikes on long maturities, even if they will remain limited.
The implied volatility (IV) of short-term derivatives, measured by the MOVE index, has moved within a limited range. The volatility (IV) is expected to maintain itself, fluctuating within limited boundaries with contained variations.

European bond market
The shape of the yield curves across countries remained broadly unchanged. Overall, yields declined almost uniformly, with the exception of 30-year maturities, which eased more significantly.
In contrast to the US, the recent decline in funding costs and their spread to long-term maturities should support the carry trade and further reduce yields on these maturities.
Regarding the underlying trend of spreads, the main European 10-year spreads relative to the 10-year German bond have stabilized, awaiting a technical rebound, while remaining generally downward trend.
After the adoption of the budget, the French 10-year spreads have eased against the main European 10-year bonds, but they remain on an overall upward trend.
This week, the volatility (HV) of the European bond market continued to decline, unlike the U.S. market. This decrease was primarily driven by short- and medium-term maturities, while the volatility (HV) of 30-year maturities increased, in line with the trend observed in the United States.
The long-term volatility (HV) of the European bond market remains oriented downwards, driven by short-term volatility (HV) beginning to stabilize.
In this context, the volatility (HV) of the French bond market continues to decrease gradually compared to the German market, while the volatility (HV) of the Italian bond market continues to decline relative to the French and German markets.
As of today, Euribor and ESTR futures anticipate a 25 basis point rate cut for the March meeting, which is part of an overall expectation of a cumulative 75 basis point cut by the end of December 2025.
You will find details of the various components of European bonds below and more in the Interest Rates section.

EURUSD parity
The dollar has remained broadly stable against major currencies, supported by several key factors, including the Federal Reserve’s decision to maintain the status quo on its benchmark rates, while many other central banks continue their monetary easing policies. This divergence reinforces the resilience of the greenback. In addition, the statements and actions of the US President reinforce a climate of uncertainty, adding an additional layer of volatility to the foreign exchange market, already amplified by movements in other central banks’ benchmark rates. These factors should remain the drivers of the foreign exchange market.
Against its major peers, the euro has not experienced a more flamboyant performance. The unstable political situation within the European Union, the rise of parties linked to the "brown plague," a sluggish economy with no signs of short-term recovery, the lack of political will to make the euro a counterweight to the dollar by unifying its capital markets, as well as expectations of a continued decline in reference rates, all contribute to the weakness of the single currency and significantly hinder its prospects for a lasting rebound.
Technically, on the EUR/USD exchange rate, the single currency continues its decline against the dollar, driven by the drop in short-term rates in Europe. This dynamic in the early segments of the yield curve is expected to persist and continue weighing on the euro.
Following the latest BOJ rate hike and expectations of further increases, the yen has strengthened against other currency pairs, while the renminbi has weakened, particularly significantly against the yen.

Equity Indices
The US markets ended slightly lower, more marked movement, although modest with the Dow Jones falling more sharply, while the S&P 500 followed more moderately but experienced a larger volatility variation (HV). The TSX moved in a similar context of volatility variation (HV), but more modestly.
In Europe, the balancing effect was felt, with the indices posting modest gains, led by the Stoxx 50, followed by the Stoxx 600. The CAC 40, meanwhile, acknowledged the end of the French political drama related to the adoption of the budget, following the upward movement to a lesser extent while benefiting from the bonus of its volatility variation (HV).
In Asia, our composite index, composed of the Hang Seng, the Nikkei and the Nifty 50, was supported by the Chinese index in a context of strong volatility variation (HV). Conversely, the Indian index remained extremely timid, posting only a minimal gain, while the Japanese index recorded a more significant decline.
Overall, US and European stock indices continue to follow an underlying upward trend. However, US markets are entering a more pronounced profit-taking phase, with the country's current trajectory raising questions in the press in many countries, changing perceptions of the US abroad. This concern about a possible drift in the United States, coupled with the expectation of an announcement of a tax cut and the financing of this having become opaque, should exert downward pressure on the indices. In Europe, this profit-taking should be less significant. The DAX remains the most resilient European index, with the strongest outlook. Expectations of a deficit-driven recovery continue to support this trend, even if Germany's debt level is not expected to break the ceilings. The CAC 40 should follow this dynamic but weakened by the threat of persistent political uncertainty. Finally, the performance of Asian indices is mixed, with the Hang Seng entering an upward phase, albeit still limited, the Indian index experiencing a fragile technical rebound, and the Nikkei remaining weighed down by high interest rates.
Long-term HV volatility across indices continues to rise, while short-term HV volatility, though temporarily weakened, remains on an upward trajectory. Among the indices, only the FTSE stands out, although it, like the others, has seen an increase in long-term HV volatility, it remains in a technical rebound configuration.