US bonds are destroying global markets

US bonds wreak havoc on global markets as prospect of more rate hikes ushers in another wild day

  • US government borrowing costs have risen the longest since 1984



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US government borrowing costs have hit their longest hike since 1984, as the prospect of more rate hikes sparked another wild day in global markets.

Ten-year bond yields – which move inversely with their prices – have risen for 12 weeks in a row as the US central bank, the Federal Reserve, struggles to curb rampant inflation.

The milestone came despite a reversal late in yesterday’s session, as bond yields fell on a hint that the Fed may soon be ready to let off the accelerator.

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Wild: Ten-year bond yields – which move inversely with their prices – have risen for 12 weeks in a row as the US central bank, the Federal Reserve, battles to curb rampant inflation

Elsewhere, traders also scrambled to react to a sudden spike in the Japanese yen and the latest political chaos in the UK, and looked ahead to the European Central Bank (ECB) rate decision next week. But it was movements in US bonds and the outlook for US yields that took center stage.

Ten-year bonds are important worldwide because they are used as a risk-free benchmark against which trillions of dollars worth of other investments are priced.

Yesterday, the yield on the bonds – known as Treasuries – reached 4.34 percent, the highest level since 2007 and a staggering increase of just 2.64 percent at the end of July.

But the picture later changed when the Wall Street Journal reported that while the Fed still looks set to hike interest rates by three-quarters of a percentage point in November — which would be the fourth such jumbo hike in a row — it could slow it down quickly. Officials are likely to debate whether and how to signal plans to move to a smaller raise in December, the report said.

The dollar, also fueled by the Fed’s determination to raise interest rates, also took a step back.

Wall Street stocks advanced on the prospect of looser interest rate policy and in London, the FTSE 100 ended a turbulent session, 0.4 percent higher.

It was another bumpy day for the pound, which got a boost earlier in the week when Liz Truss stepped down as prime minister. Rising speculation that Boris Johnson could return as prime minister left sterling volatile, but later strengthened as the greenback softened.

Ten-year bond yields in the UK also bounced off before moving higher late in the session.

Meanwhile, the yen recovered from a 32-year low. The Japanese currency has performed worst among global currencies in the face of the rampant dollar, and the rebound in its fortunes prompted the Bank of Japan to step in again — after spending billions last month to keep it afloat.

In Europe, the prospect of another three-quarters point hike by the ECB next week pushed German 10-year yields to their highest level since May 2011. But they fell again after the report in the Wall Street Journal.

Paul Nolte, a fund manager at the Kingsview Asset Management financial platform in Chicago, said: “There is some acknowledgment by Fed governors that we need to think about stepping back from 75 basis point rate hikes. The Fed should not take a pivot, but maybe take a break sometime in the first quarter.”


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