Global government bonds drop as traders prepare for Fed rate rise

Global government bonds fell on Wednesday, continuing sharp selling in debt markets from Australia to the eurozone, as traders braced for the US central bank to launch an aggressive series of interest rate hikes.

The yield on Australia’s 10-year bond rose 0.18 percentage points to 3.57 percent during European morning trading, the highest since 2014, while the more policy-sensitive two-year bond yield also rose 0.18 percentage points to 2.9 percent. . The move comes after Australia’s central bank on Tuesday raised rates above expectations by more than 0.25 per cent for the first time in more than a decade, according to data from Bloomberg.

The Reserve Bank of Australia began a big week for central bank decisions, with the Federal Reserve expected to announce its first 0.5 percentage point increase since 2000 at the end of its two-day policy meeting on Wednesday. Futures markets are up three-and-a-half points at central bank meetings in June, July and September, as it moves to combat rising inflation.

Yields on the 10-year Treasury note, a key economic benchmark used by banks and investors to price loans and other financial assets, rose 0.01 percentage points to less than 3 percent, the highest since the end of 2018. Built around the highest level.

“We think the FOMC [Federal Open Market Committee]A well telegraphed 50bp . will deliver [basis point] rate hike,” said ing strategists. “With a 75bp move. . . not completely off the table but unlikely at this stage.”

Bond yields rise when their prices fall, reducing the appeal of fixed-income payments compared to cash in the bank with expectations of rate increases.

Government debt markets have come under pressure as central banks rolled back pandemic-era policies that suppressed borrowing costs during the crisis.

In Europe, the 10-year German Bund yield – a benchmark for borrowing costs in the bloc, which started the year below zero – rose 0.07 percentage points to 1.03 percent on Wednesday. Italian and Spanish debt sold heavily, with the yield on Italy’s 10-year bonds jumping 0.08 percentage points to 2.93 per cent on Wednesday, the highest since the market crash in early 2020.

The European Central Bank may implement the euro area’s first rate hike since 2011 in July this year, said Isabel Schnabel, a member of the central bank’s executive board. an interview With the German publication Handelsblatt published on Wednesday.

“From today’s perspective, I think a rate increase in July is possible,” Schnabel said.

The annual pace of consumer price inflation in the US hit 8.5 percent in March as energy and food costs rose in response to Russia’s invasion of Ukraine, which prompted sanctions on Russian oil and disrupted wheat and grain supplies. . Eurozone inflation is running at a record high of 7.5 percent.

Speaking to Handelsblatt, Schnabel also said that the ECB would be able to “end net purchases” under a program to buy out the central bank’s member states’ debt “by the end of June”.

Europe’s Regional Stokes 600 index rose 0.1 per cent in equity markets on Wednesday. London’s FTSE 100 fell 0.1 per cent.

Hong Kong’s Hang Seng index fell 1.2 percent as traders positioned for tighter monetary policy in the US, where a stronger dollar has created higher financing costs for emerging market businesses that borrow in the reserve currency.

The dollar index, which measures the US currency against six others, traded at 103.5 points, near a two-decade high.

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