Global government bonds fall as traders brace for Fed rate hike
Global government bonds tumbled on Wednesday, with debt markets from Australia to the euro zone seeing heavy selling, as traders braced for the US central bank to begin an aggressive round of interest rate hikes. ‘interest.
Australia’s 10-year bond yield rose 0.18 percentage points to 3.57% in European morning trade, its highest level since 2014, while the more sensitive two-year bond yield policy, also rose by 0.18 percentage points to 2.9%. according to Bloomberg data. The moves came after Australia’s central bank on Tuesday raised rates for the first time in more than a decade by 0.25 percentage points higher than expected.
The Reserve Bank of Australia kicked off a big week for central bank decisions, with the Federal Reserve set to announce its first rate hike of 0.5 percentage points since 2000 at the end of its two-day policy meeting on Wednesday. Futures markets are pricing in three more half-point hikes at central bank meetings in June, July and September as it prepares to tackle soaring inflation.
The yield on the 10-year Treasury note, a key economic benchmark that banks and investors use to price loans and price other financial assets, rose 0.01 percentage points to just under 3%. , remaining around its highest level since the end of 2018.
“We believe that the FOMC [Federal Open Market Committee]will deliver a well telegraphed 50bp [basis point] rate hike,” ING strategists said. “With a 75 basis point move . . . not completely off the mark but unlikely at this point.
Bond yields rise when their prices fall, with expectations of rising rates reducing the attractiveness of fixed-income payments relative to bank cash.
Government debt markets have come under pressure as central banks roll back pandemic-era policies that suppressed borrowing costs during the crisis.
In Europe, the yield on the 10-year German Bund – a benchmark for borrowing costs in the bloc, which started the year below zero – added 0.07 percentage point to 1.03% on Wednesday. Italian and Spanish debt sold off heavily, with the yield on Italian 10-year bonds jumping 0.08 percentage point on Wednesday morning to 2.93%, its highest since the market turmoil in early 2020.
The European Central Bank could implement the first eurozone rate hike since 2011 in July this year, central bank board member Isabel Schnabel said in an interview with German newspaper Handelsblatt.
“Looking ahead today, a July rate hike is possible in my view,” Schnabel said.
The annual pace of consumer price inflation in the United States hit 8.5% in March, as energy and food costs jumped in response to the invasion of Ukraine by the Russia, which led to sanctions against Russian oil and disrupted wheat and grain supplies. Eurozone inflation hit a record high of 7.5%.
Speaking to the Handelsblatt, Schnabel also said the ECB would be able to ‘end net purchases’ under the central bank’s program to purchase member state debt ‘by the end of June’. .
On Wednesday, in stock markets, the European regional Stoxx 600 index rose 0.1%. London’s FTSE 100 fell 0.1%.
Hong Kong’s Hang Seng index fell 1.2% as traders positioned themselves for tighter monetary policy in the United States, where a stronger dollar has created higher funding costs for emerging market companies who borrow in the reserve currency.
The dollar index, which measures the US currency against six others, traded at 103.5 points, close to a two-decade high.