Bonds are getting smashed in Asia, and the global benchmark US 10-year Treasury yield is pushing to new highs

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The global bond sell-off spilled into Friday trade in Asia.

US bond yields continued to edge higher, in a synchronised global selloff which saw Australian government bond yields also rise across the curve.

After climbing above 2.6% overnight, a short time ago benchmark US 10-year bond yields had pushed above 2.63% in Asian trade.

Australian 10-year government bonds were at 2.85%, their highest level in four months.

Yields rise when bond prices fall, so bondholder’s assets shrink in value when yields are rising.

Moves of 0.1 of a percentage point in yields are relatively significant in the bond market, which has an estimated global value of some $US100 trillion.

ANZ’s Senior Rate Strategist Martin Whetton attributed this morning’s move higher to the possibility of a reshuffle at the US Federal Reserve.

Reuters reported that sources claimed John Williams from the San Francisco Fed was in the running for the role of Vice Chair at the US Federal Reserve.

Williams’ approach to monetary policy is considered more on the hawkish side.

AxiTrader’s Greg McKenna told Business Insider the recent price action was in response to mounting evidence of global economic growth.

“With global growth so strong and synchronised, the time for emergency monetary measures is well past,” McKenna said.

“Traders have entered 2018 recognising that, which has seen longer bonds rates rise across the globe – Europe, the US, and Australia.”

“That makes sense given the big marginal buyers – the Fed, ECB, and BoJ – are all at various stages of walking away from their bond buying,” McKenna said.

This chart from McKenna highlights his view that the 2.64% — 2.65% level — reached soon after Donald Trump was elected in November 2016 — represents an important threshold.

“While it is worth respecting this level — unless or until it breaks — a move above here would go some way to confirming the end of this 30 year bull market in bonds,” McKenna said.

“I’d want to see a month end above that level, a couple in fact, and a move to 2.8% would really confirm the outlook has changed.”

And McKenna said a sustained move higher would have implications for other asset classes.

“The rolling crises of the past 20 years lulled folks into thinking bonds can stay quiet whatever the global economy or stocks do,” he said.

“It’s time for bonds and stocks to do what they used to do in these circumstances. Move in the opposite direction.”

Whetton said the recent price action was also being driven by the market for longer-dated mortgage rates in the US.

“30 year US mortgage rates are at 4%, that’s a 10 month high and appears to have driven paying in long end swaps,” Whetton told Business Insider.

“That implies borrowers are hedging for higher rates to ‘fix’ their obligation on the rate they are paying.”

However, he’s unconvinced the recent selloff will continue.

“My near-term outlook is that the selloff has some momentum, but in the absence of new data, the selloff probably cools,” Whetton said.

Australian government bond yields haven’t been immune to the global selloff, with Aussie 10-year yields back trading near a four-month high above 2.86%.

The move in benchmark US 10-year notes marks a rise of more than 20 basis points since the start of the year, and at current levels the US 10-year is trading just shy of its 12-month high.


Earlier this month, famous bond investor Jeff Gundlach highlighted 2.63% as key resistance, and said a sustained move higher would signal the end of the bond bull market.

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