The Surge in German 10-Year Bond Yields Triggers Sell-Off in Global Markets

The German 10-year bond, which is the eurozone’s benchmark, climbed to a whopping 2.98 percent. The highest in over a decade.

The rush to sell

Analysts said Thursday’s moves were particularly sharp in Britain because gilts had rallied in recent weeks, as markets positioned themselves for an end to the Bank of England’s rate hikes. Investors who had positioned themselves for lower yields rushed to sell as the market moved against them, according to TD Securities strategist Pooja Kumra.

US Treasuries have risen sharply since the Fed indicated last week that it would cut interest rates much more slowly next year and in 2025 than investors had priced in.

Piet Haines Christiansen at Danske Bank says that the bond market is caught in a perfect storm and that “higher for longer” has bedeviled investors with the wrong positioning, which together with the higher revisions to the French and Italian budget deficits, as well as the higher oil price that keeps inflation expectations high, have driven the sales we have now seen.

The increased borrowing costs were reflected in a €3bn sale of Italian 10-year bonds by the Italian finance ministry on Thursday.

Italy’s government forecast late Wednesday that this year’s budget deficit would come in at 5.3 percent of gross domestic product, up from the 4.5 percent target it set in April, citing the soaring costs of a controversial home improvement tax credit program.

Rome raised next year’s deficit target to 4.3 percent of GDP, up from the early target of 3.7 percent, which it said would allow it to finance its top policy priorities,

2023-09-28 19:32:18
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