Global bonds are set for their steepest monthly decline in years, driven by deteriorating government finances, a glut of new debt issuances and persistent inflation. The benchmark 10-year US Treasury yield reached 5.23 percent in Asia trading, the highest point since 2007, representing a nearly 50 basis point jump this month—the largest such move in approximately two years.
The 2-year Treasury yield remained flat at 4.889 percent following remarks from New York Federal Reserve President John Williams, who pushed back against expectations for earlier policy tightening. The 2-year has still climbed more than 50 basis points for the month.
The repricing extends globally. Japan's 10-year government bond yield is up 42 basis points this quarter and hovering near multi-decade highs. Germany's 10-year yield hit a 17-year peak this week, while French yields reached 18-year highs.
"This is becoming much bigger than another repricing of the next few central bank meetings," said Charu Chanana, chief investment strategist at Saxo. "I do think we are moving towards a structurally higher-yield regime." Chanana added that the hurdle for yields to return sustainably to the ultra-low levels that prevailed after the Global Financial Crisis "looks much higher."
Equity markets have shown resilience despite the bond selloff. MSCI's broadest index of Asia-Pacific shares excluding Japan rose 0.4 percent, though it is on track for a monthly decline of nearly 1 percent. Japan's Nikkei jumped 2.1 percent and is set to end the month up 0.8 percent. South Korea's Kospi is headed for a monthly gain of 0.7 percent.
US and European index futures moved higher. Nasdaq futures rose 0.13 percent and S&P 500 futures added 0.24 percent. Euro Stoxx 50 futures climbed 0.77 percent to 6,384, German DAX futures rose 0.76 percent to 25,729, and FTSE futures gained 0.71 percent to 10,753.
Mohammed Apabhai, Citi's head of Asia-Pacific trading strategy, attributed the equity strength to upbeat corporate earnings and growth in nominal GDP. "US equity markets are reacting to the rise in bond yields but only outside of the tech space," Apabhai said.
The persistently higher risk-free rate increases refinancing costs for companies and puts downward pressure on economic growth. But that impact has been limited on stock performance thus far.
