German long-dated bonds led a global selloff Monday as investors weighed the latest signs of resilience in the global economy and the prospect of a prolonged period of high interest rates.
(Bloomberg) — German long-dated bonds led a global selloff Monday as investors weighed the latest signs of resilience in the global economy and the prospect of a prolonged period of high interest rates.
The yield on 30-year German bonds rose nine basis points to 2.72%, the highest since early 2014, further steepening the yield curve. The rate on equivalent US Treasuries rose seven basis points to 4.27%.
Bond markets around the world are on the backfoot after a string of strong economic data revived concerns over the inflation outlook. Federal Reserve Governor Michelle Bowman said over the weekend the US central bank may need to raise rates further in order to fully restore price stability. Attention now turns to the US inflation report Thursday.
The release “will be really key to have a better idea of whether the Fed will hike in September or hold,” said Evelyne Gomez-Liechti, a rates strategist at Mizuho International Plc.
The recent global selloff has been compounded by higher US Treasury issuance and thin August liquidity. The moves on Monday come even as shorter-maturity German securities proved resilient after the central bank surprised the market by saying it would stop paying interest on domestic government deposits.
“We think there is a clear argument for a further rebuild of term premium, biasing curves steeper and keeping long-end yields stickier into an eventual downturn,” said BNP Paribas analysts including Sam Lynton-Brown.
–With assistance from James Hirai.
(Updates throughout.)
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