World bond markets rally as RBA ups bond buys, ECB official urges motion to curb charge rise By Reuters

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© Reuters. FILE PHOTO: Traders wearing masks work on the NYSE floor in New York City on the first day of in-person trading since it closed during the coronavirus disease (COVID-19) outbreak

By Gertrude Chavez-Dreyfuss and Yoruk Bahceli

NEW YORK / LONDON (Reuters) – Major government bonds rallied globally on Monday and US 10-year yields pulled back from recent highs after a surge that rocked global markets last week.

Benchmark US Treasury bond yields fell for the second year in a row on Monday after hitting an annual high last week as Fed officials further downplayed runaway inflation concerns, despite a round of solid economic data slowing the decline .

Other central banks, meanwhile, suggested that they were unlikely to tolerate a surge in yields.

TD Securities announced in a research note that it expects 10-year returns in the US to be 1.45% year-end.

“We believe that any further rate hike will significantly tighten financial conditions and therefore could be self-limiting,” TD wrote.

Richmond Federal Reserve Bank President Thomas Barkin said Monday there was no indication that inflation expectations were going beyond reasonable limits. Meanwhile, the Reserve Bank of Australia made above-expected asset purchases on Monday, while European Central Bank policymaker François Villeroy de Galhau said the recent surge in bond yields was unjustified and the ECB should add that in its bond purchase included flexibility push back program.

In Australia, ten-year bond yields fell as much as 22 basis points after the Reserve Bank of Australia announced bond purchases worth more than A $ 4 billion (US $ 3.1 billion). This was the second such step in as many days. However, bond yields recently rose slightly to 1.671%. “This development could have a positive effect on confidence that central banks are likely to take action against movements in yields that they fear are unjustified,” Rabobank analysts, led by Richard McGuire, told clients. Many markets had already shown signs of calming on Friday and the mood continued on Monday. Government bond yields in Asia, the US and the euro area all started lower from the week onwards. The outperformance of Australian bonds in terms of prices poised for their best daily performance since the COVID-19 market last March underscored the market analysts’ impression that verbal central bank intervention would not be enough to make returns clear afterwards to lower sharp climbs.

Monday’s moves were also explained by a rally in Eurodollar futures, which investors are betting on future interest rate movements, analysts at Rabobank said. They showed a run-off of some of the moves last week pricing in a Fed rate hike in early 2023.

Eurodollar futures on Monday fully priced in a US interest rate hike through June 2023 from March 2023 last Friday.

US Treasuries underperformed, with the 10-year benchmark return falling to 1.447% by noon.

US five-year bond prices were the biggest gains, with yields falling 5 basis points to 1.123%.

“Treasury bond prices are rising due to heavy futures-related purchases, short-covering and decent mortgage purchases, resulting in lower returns on five- and seven-year bonds,” said Tom di Galoma, chief executive of Seaport Global in New York.

Sebastien Galy, senior macro strategist at Nordea Asset Management, noted that this is likely to be the end of that “tantrum” and offers opportunities for investors facing changing markets.

In the euro area, where analysts say the bond yield hike was less justified than in the US, Italian 10-year yields fell to 0.664% and German 10-year yields each set 7 basis points on their biggest daily falls since June 2020 ..

Weekly data showed that the European Central Bank, which intervened orally last week to emphasize that it was watching the rise in bond yields, slowed its net bond purchases the previous week. However, a spokesman said the decline was due to much higher withdrawals.

Chart: Global bond yields start with falling months – https://fingfx.thomsonreuters.com/gfx/mkt/gjnpwzoezvw/global%20bond%20yields.png

($ 1 = 1.2850 Australian dollars)

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