The gigantic rise in Australian 10-year bond yields signals an end to the bond market rally, and also suggests investors may be regaining their appetite for some risk, with the share market also expected to move higher at the open.
Having dropped 17 basis points to a six-month low of 4.05% on Monday - closing at 4.10% - the 10-year bond yield jumped 22 basis points to a two-day high of 4.31% today.
This suggests that the 10-year bond yield could regain its 200-day moving average.
Local bond movements followed an historic selloff in U.S. government bonds, which saw yields across all maturities rise by at least 20 basis points during the session.
It was fear of a global recession triggered by the U.S. administration’s tariffs agenda announced last week — and uncertainty around whether some of the most severe levies are being negotiated — that led to sharp swings in the bond market as the week kicked off.
The U.S. 10-year bond yield rose 19 basis points to 4.18% - after plunging to a six-month low of 3.87% overnight - following revelations that rumours of a 90-day tariff pause were fake.
30-year bonds were around 23 basis points higher in late trading marking the biggest one-day increase since March 2020.
“We are in this environment where a little bit of good news has a disproportionate environment on asset prices,” says Ian Pollick, head of fixed income, commodities and currency strategy at CIBC.
“We saw some potential rebalancing of the markets today, with the equity market starting to improve, and it had the first impact of displacing bonds.”
Investors should watch the pending supply deluge in the U.S. this week - with a US$58 billion 3-year auction on Tuesday – for signs of cracks in demand for U.S. bonds.
10 and 30 year auctions are due later this week.
“The market’s notably skittish,” Brij Khurana, portfolio manager at Wellington Management Co., said.
“If you want to solve trade, unfortunately that does mean that you’re going to have less demand for U.S. assets going forward from foreigners.”
