(Bloomberg) --Treasuries extended declines, stoked by expectations for aggressive interest-rate hikes around the globe.
Yields rose on Tuesday, with the rate on the U.S. 30-year bond hitting the highest since June. Italian debt is among the laggards in Europe as money markets
Government bonds worldwide are extending declines after the worst six months in five years, a Bloomberg index showed. Meanwhile, the pool of negative-yielding debt shrank to a six-year low, after nearly $3 trillion was wiped out in just two days last week.
‘Triple Whammy’
Traders see a 30% chance the Federal Reserve will kick off interest-rate hikes with the sharpest increase in two decades in March, after an unexpectedly strong jobs report Friday reinforced speculation the economy is at risk of overheating. The Bank of England came close to hiking rates 50 basis points last week, and the prospect of such an increase as soon as March is a coin toss for markets.
Meanwhile, the ECB’s concern over inflation has cemented bets that policy makers will lift rates 50 basis points by year-end, which would take them to zero. Governing Council Member Klaas Knot said he expects a 25-basis-point
“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.”
Greek 10-year yields pulled back on Tuesday, a day after surging as much as 30 basis points to 2.57%, the highest since April 2020. The debt is most susceptible to monetary policy as it will no longer benefit from the ECB’s asset-purchase program beyond March because the nation is still rated below investment grade by the major ratings agencies.
“It’s a bumpy road ahead with the prospect of rate hikes, the ongoing energy crisis and the geopolitical situation in Ukraine,” said Alexandros Malamas, a trader at Piraeus Securities in Athens, adding “we need to see how the dust settles.”
Equivalent Italian debt, also a major beneficiary of ECB stimulus, saw yields jump as much as 15 basis points.
Treasuries fell Tuesday, with 10-year yields up two basis points at 1.94% as of 8:02 a.m. in New York. The U.S. CPI report due Thursday could be the next flash point, with economists forecasting inflation accelerated to a 7.3% annual pace last month.
“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 signaling suggests upside risks to our yield forecasts,” said Goldman Sachs Group Inc. strategists including Praveen Korapaty.
(Updates prices throughout, quote in eighth paragraph.)
--With assistance from Ruth Carson.
© 2022 Bloomberg L.P.
