A worldwide sell-off in government bonds deepened on Wednesday, with the rise in long-term borrowing costs to their highest level this year spreading unease across all assets and putting stock markets under pressure too.
European equities stabilised after the previous session’s heavy losses as upbeat regional economic and corporate reports helped. But bond yields continued to push higher, with investors reassessing the early year deflation scare in the light of a 50 per cent rebound in oil prices from January’s trough.
That deflation scare, itself driven by a halving of energy prices at the back end of 2014, had unleashed a wave of central bank interest rate cuts and bond buying by the European Central Bank, sank many bond yields to zero and below and lifted relatively higher yielding equities to ever higher records.
ADVERTISEMENT
With oil now bouncing back sharply and after last week’s news that Europe ending four months of consumer price deflation last month, there has been some reversal of those trades.
Germany’s 10-year yield hit a 2015 high just under 0.6 per cent. The yield has more than tripled in a week and risen 10-fold in just three weeks, erasing all the gains made this year.
Benchmark 10-year yields on Spanish, Italian and the U.K. government bonds also hit year highs before retreating back below Tuesday’s closing levels. The 10-year U.S. Treasury yield was within three basis points of a 2015 peak too.
ADVERTISEMENT
Spain’s benchmark yield hit 1.96 per cent, Italy’s 1.98 per cent and Britain’s gilt yield broke through 2 per cent, although the selling abated throughout the morning.
Europe’s index of leading 300 stocks was up 0.1 per cent on the day at 1,557 points, having earlier touched a two-month low of 1,545. In choppy trading, Germany’s DAX was up 0.7 per cent, having also hit a two-month low earlier in the session.
The euro zone’s blue chip benchmark EuroStoxx50 regained almost 1 per cent of the 2.4 per cent losses it recorded on Tuesday.
U.S. futures pointed to a slightly higher open on Wall Street. The S&P 500 lost 1.18 per cent on Tuesday, and the Nasdaq 1.55 per cent.