LONDON, Oct 1 (Reuters) – Borrowing costs from the US to France, Britain and Japan hit their highest in decades on Thursday, squeezing already pressured government finances, and threatening stocks, credit and other global assets.
The 10-year US Treasury yield, a yardstick for borrowing costs and asset prices globally, rose to 5.34%, its highest since 2002.
COMMENTS:
TIMOTHY GRAF, HEAD OF MACRO STRATEGY FOR EMEA, STATE STREET:
“I don’t think there’s a specific trigger. Moves like today feel like positions have been stopped out. If you look at energy prices, they are contained. But the reasons why we (yields) are here is clear – central bank rates are going up.”
“French OATs are getting beaten up because it’s budget time and it’s messy. Italian bonds are also getting whacked.”
FRED NEUMANN, CHIEF ASIA ECONOMIST, HSBC:
“There is more than inflation that has bond investors worried these days. Even a milder US inflation print, therefore, is not enough to turn the narrative. Beyond stubborn price pressures, large government deficits and enormous funding demand from the AI sector are also pressuring interest rates higher.”
“Meanwhile, there are lingering doubts whether central banks will ever get ahead of the curve on inflation and bring it swiftly and sustainably back to target.”
“The economic and political realities of highly imbalanced growth make it tough for monetary officials to deliver rapid and determined monetary tightening that would help to anchor bond markets.”
“It would be unfair to lay the blame entirely on central bankers: in the end, it is expansionary fiscal policies that are equally to blame for persistent inflation. Plus, the demand for long-term capital has increased thanks to the AI boom, which marks a structural shift from the pre-pandemic period when the world was awash with surplus savings.”
“Higher bond yields may well be the new normal, and financial markets are in the midst of a discovery process to see where the new long-term anchor sits. A slight upside or downside surprise in a single inflation reading is thus not going to reestablish calmness in itself. It is a necessary, but hardly a sufficient condition to bring yields back down swiftly.”
FIONA CINCOTTA, SENIOR MARKET ANALYST, CITY INDEX:
“The only way really I can see the market being calmed here is if we do see governments taking the hard decisions to cut spending and it doesn’t look like that is going to happen.”
” I don’t think there has been a whiff of that from the (UK)Labour party conference, there hasn’t really been a sense that that is on the agenda and again in France quite the opposite, with the populist parties gaining traction, more spending may be coming.”
ANDREW LILLEY, CHIEF RATES STRATEGIST, BARRENJOEY:
“We should be seeing other assets depreciate in price. And it is over to them now.”
RORY MCPHERSON, CHIEF MARKET STRATEGIST, WREN STERLING:
“We have had a prolonged selloff in bonds – they have been correlated with oil prices and also we’ve had strong US data. We don’t have enough buyers who want to buy bonds and that’s not helping.”
“We are skewed towards the short-end of the (UK) yield curve but the risk-reward trade off for 10-year bonds is becoming attractive.”
(Reporting by the Reuters Markets Team, Compiled by Dhara Ranasinghe, editing by Alun John)
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