Most dramatic fall in bonds in decades gets worse

Treasuries sold off on Monday to deepen the worst bond slide in decades, reflecting worry that global central banks will have to accelerate policy tightening after UK tax cuts fuelled concern about government spending. 

US government debt slid across the curve, with two-year yields surging as much as 10 basis points to a new 15-year high. German bund futures also tumbled. The UK government’s package of tax cuts and regulatory reforms spurred five-year gilts to decline by the most in at least three decades on Friday after its release. Equities and other risk assets also dropped Monday as the pound sank to a record low. 

“Markets are continuing to digest the implications of the UK’s fiscal statement and the huge move in gilts,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada. Investors “are fretting over the pressure on government to deliver cost of living relief, with any loosening in fiscal settings adding pressure on central banks to do more of the heavy lifting”, she said.

Bonds and stocks are tumbling in 2022 as the US Federal Reserve leads most other central banks in a rapid shift away from the monetary policies of the pandemic, which involved keeping interest rates near zero and buying debt to keep yields down. Sovereign bond markets globally are on course for the worst year since 1949, when Europe was rebuilding from the ruins of World War 2, according to Bank of America strategists. 

The yield on 10-year treasuries climbed as much as nine basis points to 3.78% on Monday, while that on the two-year bond touched 4.3%. The pound dropped as much as 4.7% to $1.0350, setting off declines across most major currencies against the dollar. Stock indices fell more than 2% in Japan, South Korea and Taiwan. 

“It’s a sell everything world!” said James Wilson, a senior portfolio manager in Melbourne at Jamieson Coote Bonds. The VIX gauge of implied volatility for the S&P 500 — often called a fear gauge for stocks — may have some catching up to do with the MOVE index for treasuries, he said.

More stories like this are available on bloomberg.com

Bloomberg