Global Bond Rout Deepens as Equities Join Slide, Dollar Weakens
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Treasury note yields rose two basis points to 2.30 percent at 8:50 a.m. in New York. Germany’s 10-year bund yield is now 14 times higher than a month ago and Japanese yields climbed. The Stoxx Europe 600 Index slid 1.4 percent and Standard & Poor’s 500 Index futures retreated 0.5 percent. The Bloomberg Dollar Spot Index dropped 0.4 percent. Oil in New York increased 1.3 percent to $60.01 a barrel.
Overblown expectations for the European Central Bank’s quantitative-easing plan helped push debt valuations to extreme levels, triggering a “large and vicious” selloff in European bonds that’s infected other markets, Goldman Sachs Group Inc. said. Treasuries fell as the U.S. prepared to sell $64 billion of debt this week, extending a slump on Monday that sent yields 13 basis points higher.
“What’s new in this is that now it seems to be the U.S. side of things driving things lower,” said Christoph Rieger, the Frankfurt-based head of fixed-income strategy at Commerzbank AG, which is ranked first among dealers by the nation’s debt agency. “With the supply that is coming up, which is certainly a factor, the market still may be tempted to test the lows. Now is not the time to be bold.”
‘Regime Shift’The drop in Treasuries stabilized at the end of last week before resuming Monday amid continued selling in European debt markets. Those losses spread to Asia Tuesday, with Japanese 10-year yields rising six basis points to 0.45 percent. German yields have advanced in 11 of the past 12 sessions, climbing 56 basis points to 0.71 percent.
The selling comes as governments add to supply. In Japan, a 10-year bond auction drew the fewest bids in six years. The nation’s finance ministry is due to sell 30-year debt May 14. The Netherlands auctioned 2.4 billion euros ($2.7 billion) of 10-year bonds on Tuesday, while Germany sold index-linked debt due in April 2026. Italy is scheduled to offer as much as 7 billion euros of securities on Wednesday.
“It all sounds like we’re absolutely doomed in the bond markets but I think it is a realization that’s hitting bond investors that they need to be extremely cautious at the moment,” Bill Blain, a London-based strategist at Mint Partners Ltd. said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro.
Stock RetreatsThe selling in the bonds spread to global equities Tuesday, with the MSCI All-Country World Index slipping 0.2 percent. European shares led losses, falling for the first time in four days as all industry groups in the Stoxx 600 retreated.
All but two of 18 western-European markets fell. Germany’s DAX Index led declines, tumbling 1.9 percent. France’s CAC 40 Index, Portugal’s PSI 20 Index and Spain’s IBEX 35 Index slipped more than 1.2 percent.
Greece has readied a repayment to the International Monetary Fund, officials said, as the European Central Bank prepared to reassess emergency funding for the country’s banks.
“The weakness today is broad-based,” said Espen Furnes, who helps oversee $85 billion at Storebrand Asset Management in Oslo. “Short term, Greece is still an issue. The bond market is showing more volatility and can possibly signal a less sanguine attitude towards QE.”
The MSCI Emerging Markets Index fell 0.8 percent, dropping for the first time in three days. Currencies were mixed, with Russia’s ruble strengthening 0.8 percent and India’s rupee sliding 0.5 percent.
China, DollarThe Shanghai Composite Index increased 1.6 percent after climbing 3 percent Monday in the wake of China’s third interest-rate reduction in six months. The Hang Seng China Enterprises Index fell 1.5 percent in Hong Kong.
The dollar’s decline on Tuesday wiped out all of its gains from the previous day. It weakened 0.9 percent to $1.1252 per euro. The Norwegian krone and Australian dollar were the best-performing major currencies tracked by Bloomberg.
Brent crude advanced 2.2 percent to $66.34 a barrel, ending three days of declines. Production from shale formations in the U.S. fell by about 1 percent this month and the decline will persist in June, the U.S. Energy Information Administration said on Monday.
Crude inventories probably dropped by 500,000 barrels through May 8, declining for a second week, a Bloomberg survey of analysts showed before EIA data on Wednesday. Stockpiles are still more than 100 million barrels above the five-year average for this time of year.