The global bond rout extended Monday, led by a selloff in Australian debt after strong U.S. payrolls data stoked expectations for aggressive rate hikes around the globe.
Australian short-end yields jumped toward the highest in almost three years after Friday’s surge in Treasury equivalents. Traders in Tokyo are on tenterhooks amid speculation the Bank of Japan may act to slow the advance in benchmark 10-year yields, which climbed Monday to 0.205%, the highest seen since early 2016. The global rout gained fresh legs last week when the Bank of England and the European Central bank added to a chorus of global policy makers concerned about sizzling inflation.
Government bonds worldwide are extending declines after the worst six months since 2016, a Bloomberg index shows. Traders see a 40% chance the Federal Reserve will kick off interest-rate hikes with the sharpest increase in two decades in March, after an unexpectedly strong jobs report Friday reinforced speculation the economy is at risk of overheating.
“The market has been hit by a triple whammy — a hawkish BOE, a hawkish ECB, a monster payrolls report,” said Andrew Ticehurst, a strategist at Nomura Holdings Inc. in Sydney. “The message is that we are in a bear market for G-10 rates, and investors may look to sell strength.”
The BoE came close to hiking rates 50 basis points last week, while the ECB also expressed concern inflation may get out of control. ECB Governing Council Member Klaas Knot said Sunday he expects an interest-rate increase as early as the fourth quarter.
Treasuries mostly held their declines from Friday, with the 10-year yield edging down one basis point to 1.90%. The U.S. CPI report due Thursday could be the next flash point, with economists forecasting inflation accelerated to a 7.3% annual pace last month.
“While we suspect some front-end pricing (such as for 50 basis point hikes) may be excessive, the broad trajectory of both macroeconomic data and central bank signaling suggests upside risks to our yield forecasts,” said Goldman Sachs Group Inc. strategists including Praveen Korapaty.
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