Global bond rout accelerates, sparks intervention from BOJ

[SYDNEY] The steepest global bond rout of the modern era extended Monday (Mar 28), with Australian and New Zealand notes sliding and the Bank of Japan (BOJ) stepping in to cap the rise in yields.

Aussie 3-year yields jumped as much as 12 basis points to 2.33 per cent, the highest since December 2014, as the nation's debt caught up with Friday's tumble in Treasuries. Japan 10-year yields rose to touch 0.245 per cent, before the BOJ announced an unlimited buying operation to keep yields below the 0.25 per cent ceiling it has indicated is the top of its allowed range.

Yields on 2-year Treasuries climbed 4 basis points to 2.30 per cent, as traders priced in 2 full percentage points of interest-rate hikes from the Federal Reserve over the remainder of this year. Longer-dated equivalents were little changed Monday to set off fresh curve flattening.

"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."

Japan's 10-year yield pared its advance to trade at 0.24 per cent after the country's central bank said it will purchase an unlimited amount of benchmark bonds at a fixed rate, the second such move in less than 2 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.

Record slump

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. 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 current levels that are already the fastest since the 1980s.

Australia's bonds are falling in line with Treasuries even though the Reserve Bank of Australia (RBA) has insisted it remains patient about the need to hike interest rates with inflation in the South Pacific nation less than half the annual pace of the US. The market remains extremely skeptical the RBA can go on resisting the global tightening tide, with swaps traders seeing better than 75 per cent odds the first rate increase comes in May.

"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. BLOOMBERG