MW: Global bond retreat yanks Japanese yields firmly above zero
The global government-bond selloff hit Asia with force on Friday, depressing prices and landing the yield on Japan’s benchmark 10-year government bond solidly in positive territory.
The yield on Japan’s 10-year bond TMBMKJP-10Y, +290.32% rose to 0.035% on Friday, according to Tradeweb, the highest level since mid-February, compared with 0.005% late Thursday. The yield remained in positive territory through an entire day of trading for the first time since Feb. 18 on Thursday, the Wall Street Journal reported. Yields rise as prices fall.
JGB yield gains had lagged the recent sharp move around the globe as markets repriced for increased inflation risks. JGB yield gains Friday were building on the smaller gains posted Thursday after the Bank of Japan surprised the market by saying it would buy an unlimited amount of Japanese bonds at fixed rates.
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Friday’s selling in JGBs also follow a fresh round of selling in U.S. Treasurys Thursday, after the release of strong U.S. housing and employment data as well as relatively hawkish comments from Federal Reserve Chairwoman Janet Yellen in testimony before lawmakers.
See: Is the bond market still smarter than the stock market?
Yellen said the Fed’s rate-setting committee agreed that the case for raising interest rates had strengthened, and that investors can expect a hike “relatively soon if incoming data provide some further evidence of continued progress toward the Committee’s objectives.” Bond traders said this week that a quarter-point Fed hike appears to fully priced into the short-dated end of the Treasury market.
The yield on the 10-year U.S. Treasury note settled at 2.278% Thursday, its highest close since late December. A global bond retreat has followed the election in the U.S. of Donald Trump, a president-elect who markets expect to introduce inflation-inducing spending efforts, plans that could require increased debt issuance.
Early Friday, as prices fell, the 10-year yield TMUBMUSD10Y, -0.80% rose to 2.32% from 2.27% late Thursday, while the two-year yield TMUBMUSD02Y, -0.66% was at 1.05% compared to 1.025%. The 30-year yield TMUBMUSD30Y, -0.83% was at 3.02%, up from 2.98% late Thursday, when it retraced some of a two-session decline.
The destructive bond-market selloff that began last week rattled investors and inspired some market gurus to proclaim the 35-year bond bull market is all but dead. But not all bond market participants are convinced a new era has been ushered in.
Noted stock bear Albert Edwards is standing by his call for the yield on the 10-year Treasury to fall to minus 1% during the next recession, and he’s saying this as the current economic cycle gets a little long in the tooth.
