The deepening global bond selloff has longer-dated securities bearing most of the brunt.
Debt from Japan to the U.S. has tumbled since European Central Bank President Mario Draghi said Thursday that officials didn’t discuss an extension to the institution’s asset-purchase plan, disappointing investors who had been speculating that more stimulus was imminent.
As the selloff extended into a second day, longer-dated bonds, which have been outperforming in recent months, emerged as the biggest casualty of Draghi’s reticence, with their yields rising at a faster pace than those on shorter maturities. That’s left the difference in yield on Treasuries due in two and 30 years at the widest in a month, and has seen a similar measure for German bonds increase by more than 14 basis points in just two days.
While yields are still lagging below historical averages, they’re quickly rising from record lows reached earlier this year, recalling the bond rout of 2015, which saw German 10-year yields climb more than a percentage point in less than two months.
“The move we are seeing in the market is being driven partly by market disappointment in the ECB’s decision,” said Mohit Kumar, head of rates strategy at Credit Agricole SA’s corporate and investment-banking unit in London. “That affected other markets. Remember that the ECB is not buying short-dated German bonds because their yields are below the deposit floor. A selloff without any changes in the Fed outlook means a steeper curve.”
Benchmark Treasury 30-year note yields rose six basis points, or 0.06 percentage point, to 2.37 percent as of 8:07 a.m. New York time, according to Bloomberg Bond Trader data. The 2.25 percent security due in August 2046 fell 1 9/32, or $12.81 per $1,000 face amount, to 97 17/32. The yield climbed seven basis points Thursday, the most since Aug. 1.
The yield on U.S. two-year notes was little changed at 0.78 percent, leaving the yield spread between the securities at 158 basis points, the most on a closing-price basis since Aug. 8.
The yield on German 30-year bunds climbed eight basis points to 0.59 percent Friday, adding to a nine-basis-point jump the previous day, while the U.K. and Japan, two markets that have help drive the global bond rally this year, also saw losses.
The yield on U.K. 30-year gilts rose 11 basis points to 1.50 percent, approaching the highest since the Bank of England cut interest rates and boosted its quantitative easing plan, while the Japanese 30-year bond yield climbed eight basis points to 0.52 percent.
Goldman Sachs Group Inc., a primary dealer in both the U.S. and Japan, warned in May that Japan could be the catalyst for the next international selloff in bonds. While there’s no immediate danger of a global spike in long-term yields amid tepid inflation worldwide, any shift in the BOJ’s unprecedented asset-purchase plan would have a ripple effect, it said.
This article was provided by Bloomberg News.