(Bloomberg) -- Global bonds rallied Friday, with investors seeking havens from a technology stock sell-off and concern over increased U.S.-Russia tension.
Benchmark Treasury yields fell as much as 4 basis points to 1.76% after the tech-heavy Nasdaq 100 Index moved into a correction. But Australian bonds were the runaway leaders, with 10-year benchmark borrowing costs dropping as much as 9 basis points to 1.90%. German peers slid to a one week low at minus 0.07% just two days after turning positive for the first time since May 2019.
European and U.K. shares followed Asian stocks lower amid the risk-off sentiment, while the yen climbed and the dollar strengthened against some of its major peers. The pound was among the decliners against the greenback after retail sales plummeted in December as the spread of the omicron variant kept shoppers at home.
“We see the rally in bonds today as a function of stretched investor positioning and some global risk-off due to continuing U.S.-Russia tensions around Ukraine, and as reflected in sharply weaker equity markets,” said Andrew Ticehurst, a rates strategist at Nomura Inc.
Global bonds are on track for their worst January since 2009, as speculation builds that the Federal Reserve could deliver more than a quarter-percentage point rate hike in March and then move to trim its balance sheet. But risk assets have stumbled too as investors baled out of expensive growth stocks with U.S. benchmarks bearing the brunt of the selloff.
Meanwhile, tensions over Ukraine are ramping up before a meeting scheduled for today in Geneva between the top U.S. diplomat and Russia’s foreign minister. President Joe Biden said Russia will “pay a heavy price” if any of its forces move across the border into Ukraine after earlier suggesting Western allies might struggle to react to a small-scale attack.
Biden Draws Line at Russian Troops Crossing Ukraine Border
Nasdaq futures extended declines Friday, dropping more than 1% after Netflix Inc. shares tumbled in after-hours trading on disappointing earnings forecasts.
Profit Taking
Still, there were signs in U.S. trading Thursday that some traders were closing bearish option positions on Treasuries to take profit. Activity was elevated in a key put contract that some flagged as a potential trigger for fresh yield surges.
Treasury Options Flow Points to Profit Taking on Bearish Plays
“From here, we look for a consolidation in Treasuries, but with a mild upward bias to yields as expectations for rate hikes and sustained growth remain,” wrote OCBC Bank strategists Frances Cheung and Terence Wu in a note Friday.
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