Flight to Bonds: markets under pressure between weak U.S. data and geopolitical tensions

A slowdown in the U.S. economy and global political uncertainty push investors toward government bonds, while equities and precious metals retreat.

Global financial markets have shown clear signs of nervousness, with a renewed shift toward government bonds and a fresh phase of weakness for equities. The bond rally, which began in the United States and Europe, has spread to Asia, supported by weaker-than-expected U.S. macroeconomic data and a resurgence of geopolitical tensions.

U.S. Treasuries extended their gains across the curve, with the 10-year yield falling by nearly one basis point to around 4.13%. This move reflects growing bets on future interest-rate cuts by the Federal Reserve after the ADP private payrolls report showed job growth of just 41,000 in December, below analysts’ expectations. Attention is now focused on the official U.S. labor market report due on Friday, widely seen as crucial for shaping monetary policy expectations.

In Asia, Australian and New Zealand government bonds benefited from signals of caution from their respective central banks, while in Japan bond futures held firm despite only moderate demand at an auction of 30-year government debt. Equity markets, however, remained under pressure: Asian stock markets fell by about 0.8%, and futures on Wall Street and European indices pointed to further declines, marking a second consecutive day of losses.

The search for safety did not support all traditional safe-haven assets. Precious metals came under heavy selling pressure, with platinum down nearly 4% and silver falling 2.6%. Gold also posted a second straight decline, weighed down by the approaching annual rebalancing of commodity indices. Oil, by contrast, edged higher, supported by new U.S. measures related to sanctions on Venezuela.

Against this uncertain backdrop, the primary bond market remains surprisingly active. Governments and corporations in the United States, Europe, and Asia have raised around $260 billion since the start of the year, a record for the comparable period. This highlights that, despite market volatility, demand for debt remains strong.

According to several strategists, markets are simply “catching their breath” after a strong start to the year. However, with mixed economic data, central bank decisions, and rising geopolitical risks, caution looks set to remain the dominant theme in the weeks ahead.

Andrea Pelucchi