Bloomberg News reports that global bonds are nosediving. This happened following two shock hikes in interest rates in the present week. This has offered traders a reality check that banks still need to get over their fight against inflation.
What about the shorter maturity yields?
Regarding the shorter maturity Treasury yields, they are close to what it was in March. The Australian equivalents have soared to levels last seen over 10 years ago. Investors started dumping the sovereign debt after the Bank of Canada became associated with the Reserve Bank of Australia. While the two banks joined, the markets had more rate surges to battle stubborn consumer price gains.
The tightening has convinced traders to rethink their bets on the US rate cuts towards the latter part of the year, thereby underscoring the threat that the fight to tame inflation is not over.
There are fresh jitters due to the prolonged rate hike cycle. This has paved the way for a new rise in volatility across the risk assets globally. However, just as hikes of last year, the concerns have put the traditional havens in the firing line, considered a gauge by the US Treasuries, which dropped by more than 1% in May as funds were repositioned.
Traders Expecting Fed Hike by July while Global Yields Soar
Bloomberg News reports that there was little change in Asia on Thursday regarding Treasury yields. The 10-year yield was just below 3.8%, up by about 10 basis points in the present week. There was a jump in Australia’s three-year yield by as much as 17 basis points, recording the figure at 3.87%, which was the highest since 2011.
More hikes in future
Investors have priced in briefly a full quarter-point hike in rate by the Fed by July. Although investors are still expecting some easing out by the end of this year, multiple rate cuts are being priced out of the markets. This has led to a fresh flattening of the sections of the US yield curve.
The US inflation data for the coming week will have all eyes on it. This is likely to offer further clues about the policy path that the Fed might adopt. A few firms like the Societe Generale SA are reckoning that the interest rates might already be at an all-time high. However, the same does not apply to the ones in Europe. Considering the hike by the European Central Bank hike, traders have priced in half a percentage point.
