Bonds gain worldwide on stimulus concerns
NEW YORK (Reuters) – Fear that US and Japanese policymakers will scale back economic stimulus sent quivers through debt markets on Monday, while US stocks gained ahead of major company earnings reports.
Bond yields climbed as investors forecast the Federal Reserve will continue raising interest rates due to stronger growth and inflation pressures despite US President Donald Trump’s criticism and after a Reuters report that the Bank of Japan (BoJ) is discussing modifying its huge stimulus program sent Japan’s 10-year bond yield soaring near sixmonth highs.
The report rekindled anxiety about whether monetary policymakers will continue lending support to the global economy and piled pressure on investors navigating rising protectionism.
US 10-year Treasury yields hit the highest in a month, trading at 2.9615 percent.
“It’s all that concern investors have about the move from global quantitative easing to global quantitative tightening,” said Rory McPherson, Psigma Investment Management Ltd.’s head of investment strategy.
“That fear gets stoked when you have reports such as this.”
Sage Advisory Services Ltd. president Bob Smith said there is no “800-pound gorilla” willing to absorb rising bond inventories. Several US bond auctions are scheduled this week.
“You’re sitting right in the dead of summer,” he said.
“I don’t think the superheroes are on the (trading) desks right now. They’re probably on the beach.”
The dollar index rose 0.19 percent off two-week lows it hit after Trump criticized Fed rate hikes and accused the European Union and China of manipulating their currencies.
Beijing said it does not intend to devalue the yuan to help exports.
“We see the latest news on trade policy as pointing to continued high risk of escalation between the US and China, and a renewed focus of the Trump administration on currency matters,” Goldman Sachs analysts said.
Trump’s warnings last week about excessive rate hikes also widened the gap between short- and long-term Treasury yields. That yield curve “steepening” accelerated on Monday, with yields on 30-year Treasuries 0.46 percentage point higher than their 2-year counterparts, the biggest gap in nearly a month.