Global bonds unsettled by Japan central bank’s tightening talk

Global bond markets were under strain on Tuesday amid talk of central bank tightening and the risk of a robust reading on US economic growth later in the week.

Bond bulls were still smarting from speculation that the Bank of Japan is close to announcing measures to scale back its massive monetary stimulus, a risk that lifted long-term borrowing costs globally.

Markets were worried that Japanese investors would have less incentive to hunt offshore for yield, said ANZ economist Felicity Emmett.

As a result, 10-year US Treasury yields jumped to their highest in five weeks around 2.96 percent and were again nearing the psychological 3 percent bulwark.

In China, government bond yields jumped after China’s cabinet said it would pursue a more vigorous fiscal policy and as traders bet on further easing in the country’s monetary conditions.

In early trade on Tuesday, the yield on 10-year Chinese government bonds jumped 5 basis points to 3.57 percent.

Highly liquid 10-year policy bank bonds issued by the China Development Bank also saw a spike in yields, jumping 7 basis points to 4.2525 percent early on Tuesday.

On Monday, the State Council, China’s cabinet, said the country would adopt a more “vigorous” fiscal policy, while in an unexpected move, the People’s Bank of China, the country’s central bank, lent 502 billion yuan ($74.36 billion) to financial institutions via its one-year medium-term lending facility, stepping up efforts to support bank lending as growth slowed.