US Treasuries Selloff Ripples Through World Markets
Treasuries started the week on the backfoot as traders scaled back bets on Federal Reserve interest-rate cuts following Friday’s blowout US employment report.
Yields on benchmark 10-year bonds rose as much as four basis points on Monday to 4.80%, the highest level since November 2023. Yields on 30-year debt also picked up to near 5% after breaching that level on Friday for the first time in more than a year.
The selloff is being spurred by jitters around persistent inflation pressures and ballooning government debt levels, leading money markets to reduce bets on US rate cuts to less than one move this year. That is rippling across global markets, with a gauge of the dollar surging to a two-year high and European bonds under pressure.
“The big question for the market now is whether the Fed really needs to cut at all this year,” said Chris Turner, head of foreign-exchange strategy at ING. “Dollar strength and firm US yields are pressure-testing the financial system.”
Markets were given further evidence of the resilience of the US economy on Friday as non-farm payrolls increased 256 000 in December, the most since March and above all but one forecast in a Bloomberg survey of economists.
The shift in Fed expectations is buoying the greenback, with the Bloomberg Dollar Spot Index rising to the highest level since November 2022 on Monday. That’s helped send the pound tumbling to its lowest in over a year, as UK assets remain at the epicentre of the global repricing, while the offshore yuan has plunged close to a record low.
Traders are now questioning how much higher US yields can go, with some even pondering the possibility of Fed rate hikes. Attention will turn to producer-price data on Tuesday and then consumer-price figures Wednesday, to further gauge the outlook for monetary policy.
“Inflation is really that key data point this week,” said Laura Cooper, global investment strategist at Nuveen, on Bloomberg TV. “For the market narrative, the risk is that it shifts to rate hikes.”
