Global bond rout deepens as jobs surge boosts rate hike bets

Bengaluru

THE global bond rout extended on Monday (Feb 7), led by a selloff in Australian debt after strong US payrolls data stoked expectations for aggressive rate hikes around the globe.

Australian short-end yields jumped towards the highest in almost 3 years after Feb 4's surge in Treasury equivalents. Traders in Tokyo are on tenterhooks amid speculation the Bank of Japan may act to slow the advance in benchmark 10-year yields, which climbed Monday to 0.205 per cent, the highest seen since early 2016.

The global rout gained fresh legs last week when the Bank of England and the European Central bank added to a chorus of global policy makers concerned about sizzling inflation.

Government bonds worldwide are extending declines after the worst 6 months since 2016, a Bloomberg index shows. Traders see a 40 per cent chance the Federal Reserve will kick off interest-rate hikes with the sharpest increase in 2 decades in March, after an unexpectedly strong jobs report Friday reinforced speculation the economy is at risk of overheating.

"The market has been hit by a triple whammy - a hawkish BOE, a hawkish ECB, a monster payrolls report," said Andrew Ticehurst, a strategist at Nomura Holdings Inc in Sydney. "The message is that we are in a bear market for G-10 rates, and investors may look to sell strength."

The BOE came close to hiking rates 50 basis points last week, while the ECB also expressed concern inflation may get out of control. ECB Governing Council Member Klaas Knot said on Sunday he expects an interest-rate increase as early as the fourth quarter.

Treasuries mostly held their declines from Friday, with the 10-year yield edging down one basis point to 1.90 per cent. The US CPI report due on Feb 10 could be the next flash point, with economists forecasting inflation accelerated to a 7.3 per cent annual pace in January.

"While we suspect some front-end pricing (such as for 50 basis point hikes) may be excessive, the broad trajectory of both macroeconomic data and central bank signalling suggests upside risks to our yield forecasts," said Goldman Sachs Group Inc strategists including Praveen Korapaty. BLOOMBERG