The bond market is flashing more warning signs as stocks melt down again

Picture: Getty Images

Amid the latest stock plunge — which saw the US market enter correction territory overnight — jitters also remain in global bond markets.

A short time ago, benchmark US 10-year bond yields — which rise when bonds are sold — were trading at 2.83%, just shy of a recent four-year high of 2.85%.

The price action in bond markets overnight was different to that seen in Monday night’s stock selloff.

In that case, the yield on US 10-years fell by eight basis points to below 2.8% as capital flows moved back into safe haven assets.

But despite a slight fall in early trade this morning, yields on US government bonds remain elevated as markets continue to reasses the outlook for inflation and interest rates.

In addition, an auction of US 10-year bonds on Wednesday night saw weak demand — a potentially ominous sign for US debt markets, given the US government plans to fund its tax-cuts via the issuance of more than $1 trillion in government bonds.

Amid the latest stocks crash, traders will be watching for more upward pressure on bond yields, as sharp moves in the bond market often act as a catalyst for volatility in stock prices.

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