After all central bankers have done since the financial crisis to prop up bond prices, it didn’t take much for them to send the global debt market reeling.
Bonds worldwide have lost 2.9 percent in October, according to the Bloomberg Barclays Global Aggregate Index, which tracks everything from sovereign obligations to mortgage-backed debt to corporate borrowings. The last time the bond world was dealt such a blow was May 2013, when then-Federal Reserve Chairman Ben S. Bernanke signaled the central bank might slow its unprecedented bond buying.
Europe led the losses that reverberated worldwide this week as signs of accelerating inflation and economic growth spurred speculation that the European Central Bank and its major counterparts are moving closer to curbing monetary stimulus, including asset purchases. The result is that investors are abandoning one of the year’s biggest trades -- a bet on higher-yielding, long-term bonds -- as they wake up to the limits of central-bank demand that drove bond yields to record lows as recently as July.
“Portfolios, banks, and hedge funds stocked up on these government bonds on the belief that global central banks would be buying them for years,” said Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings in New York. “Now, there has been a shift in central-bank policy globally.’’
In a year in which global bonds have earned 6.7 percent, it’s been months since yields were this high in major economies. Yields on 10-year gilts reached 1.31 percent, the highest since June 23, the day of the U.K. vote to leave the European Union. Similar-maturity German bonds were set for their worst month since 2013, pushing yields to 0.217 percent, a level last seen in May. U.S. 10-year Treasury yields touched about 1.88 percent, the highest since May.
Turbulent Times
There’s potential for more turbulence ahead. Next week brings interest-rate decisions from the Bank of Japan, the Fed and the Bank of England. Then on Nov. 8, Americans go to the polls to choose a new president.
Partly to get ahead of all that, companies including yogurt-maker Danone SA and Honeywell International Inc. sold about $59 billion of bonds worldwide this week, the most since mid-September, according to data compiled by Bloomberg.
Global corporate bonds lost 0.6 percent this week, sending the average yield on the notes to 2.39 percent, the highest since June, according to Bloomberg Barclays index data.
There are signs that investors welcomed the higher yields. Even as the U.S. auctioned $88 billion of notes this week amid the rout, most auction metrics painted a picture of orderly sales. For the five- and seven-year offerings, a measure of demand known as the bid-to-cover ratio matched or exceeded its average over the prior 10 auctions.