Buckling bond market casts pall over stocks
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8% to a one-month low. Japan's Nikkei fell 0.6%. [.T] Overnight, surprisingly strong partial figures on the U.S.
labour market sent a selloff in bond markets into overdrive and pushed the S&P 500 stock index 0.8% lower. [.N] Two-year Treasury yields burst above 5% and futures pricing started to admit the possibility that the Federal Reserve will raise rates twice before the year is out. Ten-year yields rose more than 17 basis points in two sessions to 4.05%, and selling wrapped around the globe as investors who had positioned for a peak in interest rates bailed out.
Germany's two-year bond yield jumped to its highest in 15 years. In Britain, traders are now bracing both for recession and for interest rates heading towards 7%, as selling across the curve drove 10-year gilt yields to post-2008 highs. Three-year and ten-year Australian government bond yields each rose a dozen basis points on Thursday and a dozen more on Friday morning to hit decade highs.
«These were pretty savage moves,» said Jack Chambers, senior rates strategist at ANZ in Sydney. «It suggests some longs have maybe been squeezed out, and people caught,» he said, with signs of strength in the U.S. economy starting to stoke nerves about how high rates could rise.
«Are we starting to price in the idea that there should be a higher term structure of rates? Maybe there has to be some reassessment given the resilience of a lot of economies to higher rates so far.» Even well-anchored Japanese government bond yields rose on Friday. Private U.S. payrolls jumped 497,000 last month, the ADP National Employment report showed on Thursday, against expectations for a 228,000 increase.
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