On the 28th, bonds fell around the world, especially British bonds. Investors around the world are accepting the view that monetary tightening will be prolonged.
The yield on UK 10-year bonds rose 20 basis points (bp, 1bp = 0.01%) to 4.56%. If the index continues to decline, it is expected to be the largest single-day increase in about a year.
German 10-year bond yields rose 14 basis points to just under 3%. The 3% level has not been set since 2011. The yield on the 10-year U.S. Treasury note rose to 4.69%, the highest level since 2007.
This move is part of the rapid repricing that accelerated this month. One of the market’s favorite forms of bond trading this year is in trouble.
Traders had poured large sums of money into long-term bonds as a hedge against a sharp economic slowdown. However, headwinds such as high oil prices that threaten to sustain high inflation have made long-term bond investments less attractive.
Saxo Bank strategist Althea Spinozzi said of the sell-off in British bonds: “It’s clear that policymakers are looking to keep interest rates high for some time.”
The market is also facing an increase in bond supply. In Europe, the European Central Bank (ECB) may accelerate sales of bonds on its balance sheet, while governments are also expected to continue issuing high levels of debt to support spending as the economy begins to slow.
Even Japan’s government bond yields, which are the last of the developed markets to continue monetary easing, are beginning to move. Yields on newly issued 20-year Japanese government bonds hit their highest level since 2014 on Wednesday as investors tested the Bank of Japan’s ability to keep interest rates low.
Yield on newly issued 20-year bonds rises to 1.475%, highest level since May 2014 (1)
For the first time since the Bank of England left interest rates unchanged last week, money markets have fully priced in the central bank’s 0.25 percentage point hike. The bank has lowered its expectations for monetary easing next year, and no longer fully expects the policy rate, currently at 5.25%, to fall to 5% within next year.
British bonds have been outperforming recently, which is why they are being sold so hard. Yields on 10-year British bonds have risen by less than 20 basis points since the beginning of the month, while yields on German and US bonds have risen by around 50 basis points.
Mark Nash, portfolio manager at Jupiter Asset Management, explained the decline in British bonds as “an attempt to catch up with U.S. and European government bonds.” He said: “Oil prices are rising. The UK is borrowing heavily from abroad, and the funding situation will be tight. Yields will have to rise.”
news-rsf-original-reference paywall">Original title:UK Bonds Lead Global Selloff as Higher-for-Longer Bets Sink In(excerpt)
2023-09-28 17:29:00
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