Federated Hermes: Weekly Markets Wrap-Up 12 November 2026
In this week’s markets wrap up, R.J. Gallo asks whether the worst of the bond selloff is behind us, while Damian McIntyre explains why central banks are not singing in unison.
R.J. Gallo, Chief Investment Officer for Global Fixed Income at Federated Hermes
Is the worst of the bond selloff behind us?
When you look at the bond market in 2026, it's hard to ignore the negative total returns. Many factors have contributed to the rising yield environment: the war in the Middle East, AI capex, the resilient US economy and the structural US fiscal deficit that neither party seems particularly eager to address.
But when does the bleeding stop? I would argue that the worst of the selloff that we've seen in fixed income in 2026 is already behind us. The 10-year Treasury yield is higher than the market's expected rate of nominal GDP growth over the next few years.
For most of the last 20 to 25 years, you couldn't say that. Usually, the 10-year Treasury yield was lower than expected nominal GDP growth. This suggests to me that fixed income investors can start to take some solace in the fact that the signal is now flashing at least yellow, moving from red to yellow and eventually to green.
Damian McIntyre, Head of Multi Asset Team at Federated Hermes
Central Banks are not singing in unison
Differing growth and inflation trajectories have global central banks moving in contrasting directions even if the Iran war has burdened their economies with one common problem.
In Japan, the age-old problem has been deflation, not inflation. At the end of October, the Bank of Japan announced that, thanks to recent price increases, the country has now hit its two percent inflation target. The Bank of Japan now looks set to raise rates to one and a half percent in December.
For its part, Australia recently raised rates for the fifth time this year due to high inflation, though some think the lucky country might soon be done with its hiking cycle.
In China, meanwhile, the central bank injected liquidity in a move that effectively amounts to a 15 basis point cut. This comes at a time when the financial health of a major state-owned conglomerate is raising concerns.
The US and Europe present a different case. Whereas China is easing, Australia is moderating and Japan is only hiking because inflation is finally high enough, the US and Europe are hiking because inflation is well above the two percent target rate, thanks mostly to the surge in energy prices brought on by the Iran war.
These central banks are taking the view that inflation must be contained even in the case of a supply shock.