Global bond rout sparks BOJ intervention
BOJ steps in twice to cap yield rise as Treasuries slide sends key part of US yield curve to 1st inversion in 16 years
Sydney
THE steepest global bond rout of the modern era extended on Monday (Mar 28), with Treasuries sliding, a key portion of the US curve inverting and the Bank of Japan (BOJ) stepping in twice to cap the rise in yields there.
Yields on 2-year Treasuries surged as much as 14 basis points to 2.41 per cent to lead increases across the curve, as traders priced in 2 full percentage points of interest rate hikes from the Federal Reserve over the remainder of this year. Yields on 5-year notes rose above those on 30-year bonds - an inversion for those maturities for the first time since 2006.
Japan's 10-year yields rose to 0.25 per cent, despite the BOJ's unprecedented move to announce 2 unlimited buying operations in one day to keep them below that level - the top of its allowed range. Aussie 3-year yields jumped as much as 19 basis points to 2.41 per cent, the highest since 2014.
Investors are dumping bonds on expectations the Fed will lead an aggressive wave of global central bank tightening this year with the impact of Russia's war in Ukraine expected to drive up inflation from levels that are already the fastest since the 1980s. 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.
"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 in Sydney. "Even as moves look stretched there are few signs of the current trend bottoming out."
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Japan's 10-year yields extended gains even after an announcement from the country's central bank that it would purchase an unlimited amount of benchmark bonds at a fixed rate on Monday, the second such move in less than 2 months. That sparked an additional purchase operation announcement from the BOJ, also for Monday.
The move underscored 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 as much as 2.4 per cent to 125.09 against the greenback on Monday, the weakest since August 2015.
The bond rout spread across Asia, with 10-year South Korean yields exceeding 3 per cent for the first time since 2014. Thailand's yields rose to the highest since 2019.
Meanwhile, the allure of China's bonds relative to Treasuries continued to fade. Three-year US yields extended a rise above their Chinese counterparts on Monday, having climbed above them for the first time since 2009 last week.
Treasuries continued to sell off on Monday to send a widely watched part of the US yield curve to its first inversion in 16 years. The curve is flattening as investors bet that the Federal Reserve will tighten policy rapidly enough to risk a sustained slowdown in growth.
US 5-year yields climbed as much as 10 basis points to 2.64 per cent, rising above those on 30-year bonds. Shorter maturities have been selling off faster than their longer-dated peers this year as investors ratchet up expectations that the Fed will hike rates to combat inflation. The spread between 5-year and 10-year Treasuries inverted earlier this month.
"Rates markets are truly caught between a rock and hard place as the BOJ's bond buying weakens the yen and helps sap demand from Japanese funds for Treasuries," said Prashant Newnaha, an Asia-Pacific rates strategist at TD Securities in Singapore. "If the BOJ keeps defending its target and the Fed doesn't push away from 50 basis point hikes, then even flatter curves lie on the horizon." BLOOMBERG
Share with us your feedback on BT's products and services
