The selling in bonds continued again overnight with the 10-year US treasury up another 7 points to 1.73%.
That’s a clear break from 2016’s trend of falling yields and is now putting upward pressure on bond rates in Australia and across Asia again today.
This is happening off the back of a changing paradigm in global markets, and how investors and traders view the outlook on central bank monetary policy.
Locally the 10-year Australian government bond is up another 5 basis points today to 2.16% – its highest levels since the post-Brexit collapse in yields. More importantly for local markets the 10-year is roughly 25 basis points, 0.25%, higher than were it was just last week.
In a note to clients this morning Skye Masters, NAB’s head of interest rate strategy, said that even if the Fed holds rates the sell off in bonds could continue. She said that even though the overall “search for yield” isn’t over “it feels like we are in one of those periods where we see a shake out of positioning”.
“The two most prominent recent periods where we have seen this occur – ie yields rise significantly even as expectations of cash rate outlook remain unchanged (to even lower) – were during the taper tantrum of 2013 and Bund led re-pricing in early 2015,” she said.
And it’s about more than just the Fed.
Masters says that with “the term premium remains very low and given current sentiment there remains a strong risk of further re-pricing even if the Fed is unchanged next week”.
“On the technical front 1.787% is the 200-day moving average for UST10s. A break above this and next key levels are seen as 1.85% and then 1.97%” she added.
US 10’s above 1.97% is 25 points above current levels.
If US rates head to these levels, expect Australian and global bonds to remain pressured. And that pressure will also find its way into global stocks.
Business Insider Emails & Alerts
Site highlights each day to your inbox.