US government bond yields lurched higher on Monday after intense volatility in Britain’s gilt market and a lacklustre sale of new Treasuries shook investor sentiment.
The yield on the 10-year US Treasury note, a benchmark for global borrowing costs, added 0.19 percentage points to 3.88 per cent in afternoon trading in New York — the highest level since 2010.
Monday’s selling followed a brutal session in London, in which gilt yields surged for the second trading day in a row after the UK government’s plans for big tax cuts spooked investors. Britain’s 10-year gilt yield rose on Monday by its most in 40 years, according to Refinitiv data.
A sale of US two-year Treasuries on Monday also highlighted how fund managers are demanding higher borrowing costs to purchase debt as they anticipate big interest rate rises from the Federal Reserve.
The difference in yield between what investors anticipated ahead of the auction, and the actual result, was the highest since the market ructions seen in 2020, according to Thomas Simons, money market economist at Jefferies. The debt was also issued with the highest yield of any two-year auction since 2007 at 4.29 per cent per cent, Simons said.
“On the one hand, the yield appears to present compelling value . . . but this crazy volatility is hard to stomach,” he added.
Last week, the Fed led the charge on a series of interest rate rises by other global peers, implementing a third consecutive increase of 0.75 percentage points to a target range of 3 to 3.25 per cent.
The dollar, which tends to strengthen in times of economic and market stress, added 0.8 per cent against a basket of six peers, hitting a fresh 20-year high.
European corporate bond markets also reflected concerns about the effect of rapidly rising interest rates. Borrowing costs for high-yield European issuers hit their highest level since the start of the coronavirus pandemic in March 2020 at 7.5 per cent, according to the ICE BofA Euro High Yield index.
In equities, Wall Street’s broad S&P 500 was down 0.6 per cent, after having lost 4.7 per cent over the course of the previous week. The technology-heavy Nasdaq Composite was little changed on Monday.
The region-wide Stoxx Europe 600 share index swung between positive and negative territory during the day before finishing down 0.4 per cent. The regional gauge had closed Friday’s session in “bear market” territory — typically defined as a decline of 20 per cent or more from a recent peak. The FTSE 100 finished flat.
