By Stephen Spratt
US Treasuries are breaching key levels as this week’s global debt selloff sends yields to their highest in about a year.
While US markets were closed on Monday for President’s Day, German bunds and U.K. gilts both saw benchmark yields gain five basis points as a significant slow-down in virus cases, and progress on vaccine roll-outs and higher oil prices bolstered stock markets and proponents of the reflation trade.
After they reopened on Tuesday, Treasury 10-year yields rose four basis points to touch 1.25 per cent — the highest since last March — while the 30-year equivalent broke above 2 per cent.
This makes for a bleak outlook for those investors who snapped up some $68 billion of 10-year and 30-year debt at Treasury auctions last week, with the bonds sold at yields almost 10 basis points lower than current levels.
The global reflation trade has gotten another bump as oil futures continued to advance, closing in on 13-month highs as weather conditions caused some of the biggest refineries in North America to shut down.
In every major markets, stocks rallied strongly to start the week. Japan’s Nikkei Index broke above 30,000 for the first time since 1990, while the S&P Index futures printed another record high on Tuesday.
In the U.K., 30-year bonds were the worst performer on Monday. Yields rose seven basis points as the FTSE 100 stock index climbed more than 2.5 per cent after the country hit a milestone in its vaccination program, supporting calls for the easing of social restrictions.
The selloff was broad with even Italian bonds — which would typically outperform safe haven assets such as German bunds when credit spreads tighten and stocks climb — under pressure. The announcement of a new 10-year benchmark bond sale to take place via syndication saw yields also advance five basis points.