Still, a slowdow in inflation could provide a ray of hope for markets and help them stabilize, Commerzbank’s Rieger added. Consumer prices are expected to rise an annual 8.1% in April, compared to 8.5% in March, according to the median estimate in a Bloomberg survey.
“For the first time in a long time, bonds are beginning to look reasonably attractive from a longer term perspective,” said Dan Ivascyn, the chief investment officer at Pacific Investment Management Co.
European government bonds were also under pressure, with Italian debt under performing again on Monday. European Central Bank Governing Council member Olli Rehn said policy markers should start raising rates in July to prevent inflation expectations becoming de-anchored.
The yield on 10-year Italian government bonds rose as much as 10 basis points to 3.23%. The spread over the equivalent German bond widened to as much as 207 basis points, after breaching a key level last week.
“We have already suggested that the combination of a growth slow-down into which the ECB will hike, and the reduction in liquidity provision will have -- potentially severe -- negative repercussions for spread markets,” Peter Schaffrik, global macro strategist at RBC Capital Markets, wrote in a note.
He expects sovereign and credit spreads to widen further, with the spread on 10-year Italian and German bonds widening to around 250 basis points.
--With assistance from Masaki Kondo.
This article was provided by Bloomberg News.