A rout in government bond markets deepened on Wednesday with U.S. yields reaching their highest in 16 years, souring appetite for riskier assets as investors bet that interest rates will remain persistently high, boding ill for the world economy.
The U.S. Treasury 10-year yield rose 6.9 basis points (bps) to 4.872%, its highest since 2007, after climbing nearly a dozen bps on Tuesday’s job openings data that pointed to resilience in the U.S. economy.
Thirty-year Treasury yields rose above 5% for the first time since August 2007, just before the global financial crisis.
European bonds followed suit, with yields on Germany’s benchmark 10-year debt rising above 3% for the first time since 2011. The country’s 30-year yield climbed to its latest 12-year high.
Even Japan’s 10-year yield , which is capped by the Bank of Japan (BOJ), rose 4.5 bps to a decade high despite the BOJ offering to buy $4.5 billion worth of bonds on Wednesday.
Australian, Canadian and British government bond yields have also surged this week.
“It’s a very difficult market,” said Sandrine Perret, multi-asset portfolio manager at Unigestion.
“It is all back to yields, that’s the main driver of markets. The pivot that most investors were expecting in September has not come yet – that’s the big driver of all market pricing at the moment.”
The moves in bond markets sucked money from all corners into dollars.
Still, the dollar , measured against a basket of currencies, eased 0.3%, helping European stocks (.STOXX) turn positive after losing as much as 0.6%. Asian shares sank to 11-month lows.
The MSCI world equity index (.MIWD00000PUS), which tracks shares in 47 countries, fell 0.2%. On Wall Street, S&P 500 futures eked out gains of 0.1% after earlier trading down 0.5%.
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) had fallen 1%, its second straight daily drop of over 1%.
U.S. yields in real terms – subtracting inflation – are also at almost 15-year highs, in part because their move has not come with much of a shift in market gauges of inflation expectations.
“With the risk-free rate so high, it’s not really compelling for people to allocate away from short-term cash-like investments,” said Mel Siew, a portfolio manager at Muzinich & Co in Singapore.
The yen was just on the stronger side of 150 per dollar on Wednesday, after an unexpected but short-lived surge in the previous session stoked speculation that Japanese authorities may have intervened to support the currency.
The Japanese currency had breached the 150-per-dollar level on Tuesday before suddenly shooting to 147.3. There was no confirmation from Tokyo, where Japan’s finance minister and top currency diplomat have made no direct comment on the move.
The yen last stood at 149.10 per dollar.
The dollar’s march pushed the euro to its lowest in 10 months at $1.0448 overnight and sterling to a seven-month trough at $1.20535.
The euro last traded at $1.05, up 0.3% on the day. The pound was up a similar amount at $1.212.
“For now, the FX market is a bystander,” said SocGen strategist Kit Juckes, “watching Treasuries and waiting for them to break something.”
Federal Reserve officials see rising yields on long-term U.S. Treasury debt as not triggering alarm bells yet.
In commodity markets, the firm dollar has helped put the brakes on oil prices and higher yields have weighed on gold.
Brent crude oil futures were down 1.7% to $89.38 a barrel. U.S. West Texas Intermediate crude fell 1.8% to $87.67 per barrel.