LONDON, Oct 4 (Reuters) – A sustained decline in global government bonds on Wednesday briefly pushed the U.S. 30-year bond yield to 5% for the first time since 2007, while Germany’s 10-year bond yield rose to 3%. , this could accelerate the rise in global government bond yields. slows down, negatively impacting stocks and corporate bonds.
Bond yields fell late on Wednesday, creating a calmer tone. However, interest rates in major countries will remain high for an extended period of time in an effort to curb inflation as U.S. economic data remains more resilient than ever, traders rapidly unwind their positions as bonds rise, and bond supply increases. This view is growing stronger, and I am keenly aware of it.
In the U.S. bond market, considered the foundation of the global financial system, the yield on the 10-year bond rose 20 basis points (bps) to 4.8% this week alone. It rose more than 200 bps in 2022, but is up almost 100 bps this year.
Bond yields are moving inversely to prices, and many asset managers who held bonds in hopes of rising prices are now exiting them.
“Right now, there’s a lot of momentum behind the selloff (in U.S. Treasuries) because the market positioning is wrong,” said Juan Valenzuela, fixed income portfolio manager at asset management firm Artemis.
“Many people have bought into the idea that now is the time to buy Treasuries because the Federal Reserve is reaching the peak of its interest rate hikes.”
On Wednesday, the 30-year U.S. bond yield hit 5% for the first time since the global financial crisis, amid a growing rout, while the 10-year German Bundestag yield hit 3%, a fresh start in a market that started with negative yields. It was a milestone. 2022.
The yield on the U.S. 30-year Treasury note has since retreated, recently hitting 4.86%, after the ADP National Employment Report showed that U.S. private payrolls grew much less than expected in September.
Australian and Canadian 10-year bond yields each rose more than 20 basis points this week, while Britain’s 30-year bond yield hit a 25-year high of more than 5% on Wednesday.
In a further sign of investor nervousness, the closely watched MOVE bond volatility index is at its highest level in four months. (.moves)
Also weighing on prices is an increase in the supply of government bonds as governments sell more bonds to cover budget deficits while selling off the huge debt holdings they built up through the recent crisis. There is.
Concerns about U.S. political governance are also a factor. A handful of Republicans in the U.S. House of Representatives ousted Republican Speaker Kevin McCarthy on Tuesday, days after Congress narrowly avoided a government shutdown.
[1/5]The euro, Hong Kong dollar, US dollar, Japanese yen, pound, and Chinese 100 yuan banknotes are seen in this illustration. January 21, 2016.Reuters/Jason Lee/Illustration/File Photo Licensed
Michael Metcalfe, head of global macro strategy at State Street Global Markets in London, said the recent decline in U.S. bonds “suggests that the risk premium for political uncertainty is being reincorporated. “
ripples
Government borrowing costs affect everything from mortgage rates for homeowners to loan rates for businesses.
The speed of the bond selloff has sparked alarm across stock markets, with the safe-haven dollar hitting multi-month highs against the euro, pound and beleaguered Japanese yen. ,,
World stock markets (.MIWD00000PUS) on Wednesday hit their lowest since April, and the cost of insuring exposure to a basket of European corporate bonds hit a five-month high, according to data from S&P Global Market Intelligence.
The S&P 500 (.SPX) rose 0.1% in early trading Wednesday.
“We’re very cautious about risk assets at the moment,” said Vikram Agarwal, sovereign debt fund manager at Jupiter.
He said, on the other hand, riskier assets such as equities and corporate credit are vulnerable to an eventual recession caused by central bank interest rate hikes.
Alternatively, if a recession does not occur and “[interest rates]rise further in a long-term scenario of status quo…that would ultimately be quite negative for risk assets.”
The new spike in borrowing costs is a headache for central banks, which are weighing the need to keep interest rates high to curb inflation against a deteriorating economic outlook.
But uncertainty about when and how that deterioration will occur has added further complexity to bond markets and contributed to the sharp sell-off in long-term bonds.
The U.S. 10-year term premium, closely watched as a measure of the fees investors demand for lending long-term funds, turned positive for the first time since June 2021, rising more than 70 basis points since the end of August. New York Fed.
Rabobank’s head of interest rate strategy said: “Everyone is crying out for a recession, but we’re just refusing to see it coming. And oil prices are going to rise even more, and of course the situation is changing in terms of the outlook for policy rates. It complicates things,” he said. Richard McGuire.
“I think all of this is coupled with investors being very wary of putting their money in long-term government bonds. Investors are demanding compensation for that,” McGuire said.
Reporting by Darla Ranasinghe, Naomi Rovnick, Alan John, Jörg Baselli, Chiara Elisei, Mark Jones and Andy Bruce. Written by Darla Ranasinghe and Alan John.Editing: Kim Cogill and Toby Chopra
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