Treasuries, Gilts Lead Global Bonds in Fretting Over Inflation
(Bloomberg) -- The bond-market selloff goes global as yields in the U.S., U.K. and Europe jumped, amid concerns that surging energy costs will strengthen inflation’s hold on their economies.
Ten-year gilt yields led the charge, climbing to 1.15% on Wednesday, the highest in more than two years. A gauge of U.K. inflation expectations soared to a 13-year high, ramping up bets on tighter monetary policy. The equivalent measure for U.S. and German price wagers hit similar milestones, climbing to the highest in at least a decade.
Bond yields have been rising around the world in recent weeks amid speculation resurgent energy prices will push up costs for businesses and consumers at a time when central banks are moving toward normalizing their monetary policies. Oil reached a seven-year high this week as the crude market tightened, while U.K. natural gas prices surged to a record.
“Bond investors are gradually turning bearish,” said Naokazu Koshimizu, a senior rates strategist at Nomura Securities Co. in Tokyo. It’s being driven by “higher oil prices, hopes for an oral medicine against Covid-19 and improving U.S. economic data,” he said.
Signs that the global recovery is regaining traction are helping to revive the reflation theme that faded in the middle of May when Fed officials started openly debating trimming back asset purchases, a precursor to raising interest rates. While U.S. consumer price inflation has slowed from its June peak, sudden shortages of some forms of energy are raising the prospect of a rebound.
The Bloomberg Commodity Spot Index, which tracks futures contracts for 23 raw materials, rose to a record on Tuesday, having gained more than 30% this year.
The latest move in Treasuries was also driven by an unexpected increase in the September ISM Services Index, published Tuesday. September payroll data due Friday may convince the Fed to announce a tapering of asset purchases in November, Fed Chair Jerome Powell said after last month’s meeting.
“Tapering of quantitative easing seems like a done deal for the November meeting,” said Thomas Simons, a senior money markets economist at Jefferies LLC in New York. “It depends on the quality of the employment data in September, but Powell has set the bar very low in terms of what he needs to see to move forward.”
Wagers for tighter monetary policy are also ramping up in the U.K., with money markets pricing almost a full 15-basis-point rate hike in December.
In New Zealand, the central bank raised interest rates on Wednesday for the first time in seven years and indicated further increases will likely be needed to tame inflation. The move was anticipated by all but one of the 21 economists surveyed by Bloomberg.
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