Treasury yields climb to three-month high on inflation concerns

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(Bloomberg) – The bond market sell-off has pushed treasury yields to three-month highs, as soaring energy costs raise concerns that inflation is on the verge of s ” capture even more of the global economy.

Benchmark 10-year yields rose five basis points to 1.57% on Wednesday, while 30-year yields jumped the same amount to 2.15%. The 10-year breakeven point, an indicator of consumer price expectations derived from the difference in yield between Treasuries and inflation-linked securities, rose to 2.51%, the highest since May.

Bond yields have risen around the world in recent weeks amid speculation as resurgent energy prices will drive up costs for businesses and consumers as central banks move towards normalizing their prices. monetary policies. Oil hit a seven-year high this week as the crude market tightened amid the global economic recovery.

“Bond investors are gradually turning bearish,” said Naokazu Koshimizu, senior rate strategist at Nomura Securities Co. in Tokyo. He is motivated by “rising oil prices, hopes of an oral drug against Covid-19 and improving US economic data,” he said.

Signs that the global recovery is picking up steam are helping to rekindle the reflation theme that faded in mid-May when Fed officials began to openly discuss reducing asset purchases, precursor to an increase in interest rates. As consumer price inflation in the United States has slowed from its June high, sudden shortages of some forms of energy raise the prospect of a rebound.

The Bloomberg Commodity Spot Index, which tracks futures contracts on 23 commodities, hit a record high on Tuesday, having gained more than 30% this year.

The latest move in Treasuries was also prompted by an unexpected rise in the September ISM Services Index, released on Tuesday. September wage data due on Friday could convince the Fed to announce a decrease in asset purchases in November, Fed Chairman Jerome Powell said after last month’s meeting.

“The gradual reduction in QE appears to be a done deal for the November meeting,” said Thomas Simons, senior money markets economist at Jefferies LLC in New York City. “It depends on the quality of the employment data in September, but Powell has set the bar very low in terms of what he needs to see going forward.”

New Zealand’s central bank hiked interest rates on Wednesday for the first time in seven years and said further increases would likely be needed to bring inflation under control. The move was anticipated by all but one of the 21 economists surveyed by Bloomberg.

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