What factors are moving the markets
12 DEC, 2025
By Marco Giordano from Wellington Management
Marco Giordano, Investment Director of Fixed Income at Wellington Management
Global government bond yields ended November relatively stable, although divergences across markets were evident. U.S. Treasury yields extended their decline, driven by dovish Federal Reserve comments and the gradual release of delayed economic data following the government shutdown. In contrast, yields rose in other regions—including German bunds, Japanese government bonds (JGBs), and Australia, where the Reserve Bank of Australia adopted a hawkish tone. Concerns about a potential AI bubble weighed on certain spread sectors.
1) End of the U.S. government shutdown
Congress reached an agreement to end the government shutdown, restoring funding through January 31, 2026. The deal included approval of three FY2026 appropriations bills, a December vote on Affordable Care Act (ACA) subsidies, the reversal of federal workforce layoffs, and full back pay for affected employees. Addressing layoffs and back pay was critical to reducing cyclical slowdown risks linked to the shutdown.
In response to recent election results highlighting affordability concerns, the administration proposed new stimulus measures, including a potential tariff rebate check and 50-year mortgages. While the rebate would require Congressional approval, its likelihood has increased and, if enacted, could add nearly 1% to GDP.
With the shutdown over, government operations resumed and a timetable for releasing delayed economic data was announced. October and November data reflected shutdown effects, while December and January figures will be influenced by the reopening. A clear cyclical signal may not emerge until Q1 2026.
2) UK budget
The long-awaited UK fiscal event contrasted with expectations of immediate tightening. Gilts rallied, removing a key external risk to short-term sterling rates. Although headlines pointed to £26 billion in tax increases, fiscal policy is set to ease slightly over the next two years, with tax rises pushed out to 2028–2030, covering the election year and the first year of the next Parliament—a timeline whose credibility remains uncertain.
Notably, there will be no spring budget going forward, removing a source of uncertainty that had weighed on business investment and consumer spending.
The UK once again illustrates how governments, under market pressure to meet fiscal rules, choose to spend more now and promise tightening later. While the Bank of England (BoE) could cut rates if weak confidence persists, it would not be in response to this budget, which represents a short-term fiscal expansion of 0.2% of GDP in 2026 and 0.3% in 2027.
Although future tightening should ensure fiscal rules are met, the absence of near-term consolidation undermines the Chancellor’s credibility. As elections approach, political constraints limit the ability to tighten policy in the short run.
The budget process itself was not without drama, as an accidental leak of Office for Budget Responsibility (OBR) forecasts led to the resignation of its chairman, Richard Hughes.
3) Japan’s fiscal package
The Japanese government confirmed a ¥21.3 trillion (US$135 billion) fiscal package aimed at shielding households from inflation and boosting investment and defense spending. Expected to be approved in early December, the package will be funded through reserves, short-term bills, and higher tax revenues, limiting near-term JGB issuance.
Importantly, Bank of Japan (BoJ) policy remains unchanged, despite market speculation. Governor Ueda adopted a more hawkish tone, linking yen weakness to inflation and highlighting positive wage trends for 2026. Together with resilient PMI data and inflation above 3%, these factors reinforce confidence in Japan’s nominal growth outlook, reflected in rising JGB yields.
Although markets are tentatively pricing in policy normalization, its gradual pace continues to weigh on the yen, which has weakened further against the U.S. dollar due to wide interest rate differentials. The lack of Ministry of Finance intervention suggests policymakers may be comfortable with a weaker currency to support growth.
4) High-yield restructuring
We continue to closely monitor corporate actions in the high-yield market, with two notable developments in November. Ardagh’s restructuring was completed, delivering deleveraging, improved liquidity via a new bond and an expanded $500 million ABL facility, as well as a new governance structure. CEO Paul Coulson stepped down, and Mark Porto, former CEO of Phoenix Global, was appointed executive chairman, signaling a renewed focus on operational recovery. Post-restructuring, Ardagh faces a selective default rating from S&P, but the deal provides breathing room for its medium-term plan.
Meanwhile, Altice International appears likely to enter a restructuring process, following Altice France/SFR. On Friday, November 28, Patrick Drahi executed a “drop-down” transaction, removing Portuguese and Dominican assets from the creditor collateral pool. Bond prices fell sharply, and the next steps and outcomes remain uncertain.
