Global bond selloff sends yields to the highest level since 2008
Global bond yields climbed back to the highest level in almost two decades as rising oil prices fuelled inflation concerns and investors ramped up expectations for interest-rate hikes.
The move started on Friday after United States Federal Reserve Chairman Kevin Warsh doubled down on his vow to finally tame inflation, and was extended this week as energy prices rose on renewed conflicts in the Middle East.
The rate on 10-year Japanese government notes touched three per cent for the first time since 1996, U.K. 30-year yields reached the highest since 1998 and the 10-year Treasury rate hit levels last seen January last year. The yield on a Bloomberg gauge of global sovereign bonds advanced for a fourth straight session on Monday, rising to 3.72 per cent, the highest since mid-2008.
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“Markets are pricing in a higher path for short rates in the U.S., but also globally,” Idanna Appio, a portfolio manager and senior research analyst at First Eagle Investments, said on Bloomberg TV. “Investors are beginning to reassess what neutral policy rates look like and there has been a gradual increase in those.”
Global bonds have been under pressure for months, with worries over elevated government spending in markets like Japan, the U.K. and the U.S. prompting investors to seek higher compensation to own longer-maturity debt. At the same time, a surge in borrowing by U.S. technology firms to fund artificial intelligence is potentially crowding out demand for sovereign bonds.
Meanwhile, fresh hostilities between the U.S. and Iran have raised concerns about prolonged disruptions to energy flows through the Strait of Hormuz , sending oil prices higher. Several current and former officials have said they expect the Middle East conflict to drag on for months.
“The direction of travel is going to be higher yields from here,” said Laura Cooper, global investment strategist at Nuveen. “Term premium likely has to be higher to compensate for this confluence of risks.”
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