The steepest global bond sellout extended on Monday with Bank of Japan stepping in to cap the rising yield and Australia and New Zealand notes sliding further.
Australian three-year yield jumped as much as 12 basis points to 2.33% marking the highest since December 2014 as the nation’s debt caught up with Friday’s tumble in treasuries.
The 10-year yield in Japan rose to 0.245%, pushing the BOJ to announced unlimited bond buying operation to keep them below 0.35% ceiling indicated the yield has reached above its allowed range.
Yield on two-year treasuries inched up by six basis pints to 2.33% as traders prices in two full percentage points of interest-rate hikes from the U.S. Federal Reserve over the reminder of the year. The gap between 5- and 30-year yields shrank to less than one basis point, the flattest since it last inverted in 2006.
Investors are now expecting the Fed will likely be aggressive in tightening to calm down inflationary risk from Russia’s war in Ukraine.
“Momentum for bonds globally is all one way at the moment, as Treasuries slump on Fed-hike expectations,” said Damien McColough, head of fixed-income research at Westpac Banking Corp, as reported by Bloomberg. “Even as moves look stretched there are few signs of the current trend bottoming out.”
Japan’s 10-year yields fluctuated following an announcement from the country’s central bank that it will purchase an unlimited amount of benchmark bonds at a fixed rate, the second such move in less than two months. The move underscores the central bank’s commitment to keep monetary settings loose, following Governor Haruhiko Kuroda’s earlier remarks that policy will remain unchanged even if inflation jumps.
The yen fell to a fresh six-year low on the news, at one point breaching the 123 per US dollar level.
Bloomberg’s Global Aggregate Bond Index has slumped 7 per cent this year, exceeding the record 5 per cent full-year loss the gauge posted in 1999.
“The local short end may not steady until risk assets start to react adversely to thoughts of aggressive rate hikes, or the RBA issues cash rate guidance which the market finds credible,” said Andrew Ticehurst, a rates strategist at Nomura Holdings in Sydney, as reported by Bloomberg.
