Global Bond Sell Off Gains Pace
The global bond sell off accelerated overnight Monday - driving more confusion about the sustainability of the great Wall Street stockmarket boom.
Wall Street sold off - the Dow, S&P 500 and Nasdaq all falling on Monday. Overnight trading on the ASX 200 saw a 28 point fall, so the 25point rise from yesterday looks like being reversed.
The US dollar was mixed - it lost ground slightly against the Aussie which traded around 80.90 US cents this morning. Gold fell 0.8% to $US1,340.70 in New York in early Asian dealings, while US oil prices sold off as well, down a few cents to around $US63 a barrel.
The yield on the key 10 year US Treasury bond hit a four year high above 2.7% before settling around 2.69% in US markets.
The sell off started in Europe and continued into the US/ German bond yields also rose as the sell off reached into non-US securities.
The yield on Germany’s five-year government bonds turned positive for the first time since late 2015, reaching 0.0013% on Monday morning in Europe. Yields on these bonds fell below zero at the start of 2015 and have not closed above zero since November 2015.
The shift carried through into longer-dated debt as well, with the 10-year German yield reaching 0.693%, its highest level since late 2015.
Yields on the 10-year UK bond hit 1.467% on Monday, its highest level for a year. They ended at 1.455%.
The US Federal Reserve starts its first meeting of the year tonight our time. It is not expected to lift rates because it is Janet Powell’s last meeting as chair. Jerome Powell replaces her at the end of this week.
Rising bond yields make borrowing more expensive, potentially straining some companies that have been relying on cheap money to grow.
The Financial Times reported that “The FTSE All-World index fell by 0.5 per cent on Monday, its worst performance since mid-November, and Goldman Sachs’ chief global equity strategist Peter Oppenheimer warned in a note that “a correction is becoming increasingly likely”, exacerbating concerns that a reversal is overdue.
“It all feels a little bit euphoric,” said Larry Hatheway, chief economist at GAM, the investment group. “It has led to a lot of people thinking that we should prepare the groundwork for some risk mitigation strategies. This can’t go on for ever,” the FT reported.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.