SINGAPORE: US Treasuries sold off sharply in Asia on Tuesday, especially at shorter tenors, as remarks from European central bankers offered a hawkish lead-in to a policy speech from the Federal Reserve’s Christopher Waller.
Two-year yields rose more than seven basis points (bps) to 4.21% when trade resumed in Tokyo after Monday’s closure for Martin Luther King day. Five-year yields rose six bps to 3.90%.
Ten-year yields rose five bps to 4.00%. Yields rise when bond prices fall.
Fed funds futures were also sold unusually heavily for Asia hours as traders dialed back some of their wagers on rate cuts.
At Davos on Monday Europe’s monetary officials struck up a hawkish chorus, with Bundesbank president Joachim Nagel saying it was too soon to talk cuts and his Austrian colleague Robert Holzmann warning against banking on any cuts at all in 2024.
European debt sold on the remarks.
Euro zone bond yields dip at end of busy week of issuance
Then steady month-on-month wholesale inflation in Japan put gentle pressure on the government bond market there and added to the tide of selling.
Analysts said combined with a Monday article from the Wall Street Journal’s Fed reporter Nick Timiraos on the possibility of changes to the central bank’s bond selling programme, the backdrop puts focus on Waller’s forthcoming speech.
“It sort of suggests that there’s something to say - it’s a very contemporaneous speech,” said Westpac’s head of financial markets strategy, Martin Whetton, with investors primed to move at any hints at shifts.
Waller is due to speak on the economic outlook at 1600 GMT.
He had excited markets in November by foreshadowing the Fed’s easing path, should inflation moderate.
Some 160 bps of rate cuts are priced in for the year ahead.
“Should he even remotely validate market pricing, then we should see US 2-year bond yields fall,” said Pepperstone analyst Chris Weston.
Comments
Comments are closed for this article.