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Global Markets: Bond yields hit multi-month highs on BOJ tweak, heavy supply

Reuters  |  LONDON 

By Ritvik Carvalho

(Reuters) - Major bond yields hit multi-month highs on Wednesday on heavy supply and as investors reevaluated the likelihood of continued easy-money policies by the world's major central banks.

Speculation the of could start to withdraw its stimulus this year after it trimmed bond purchases this week put upward pressure on bond yields across the board and sent the yen to its highest level against the dollar in over a month.

The 10-year yield hit 2.57 percent for the first time since March last year. That has caused the 2-10-year U. S. yield curve to steepen to 59 basis points - a jump of 10 bps this week.

Most euro zone bond yields were 1-2 basis points higher at the open.

Germany's 10-year bond yield hit its highest level since the October European Central meeting when policymakers first announced the extension of its bond-buying scheme, with one citing heavy supply as the trigger for the move.

"So much focus has been on the Federal Reserve and the ECB, but everyone sort of forgot about the of They sort of assumed that the BOJ would keep its foot in hard on the accelerator," said Michael Hewson, chief analyst at CMC in

"When they (the BOJ) reduced their bond-buying yesterday, people suddenly thought maybe we've underestimated the BOJ, maybe we should pay more attention to what their future policy path should be like ... and I think it's caused a reevaluation of risk in bond "

Investors also said the rise in yields across the board is giving rise to some speculation among investors as to whether this is the start of a sustained bear market for bonds.

analysts on Tuesday sent out a research note asking the question: "Have we finally entered a bond bear market?"

The analysts said in the note a recovery and action are possible drivers of a sustained sell off in bonds, though they stopped short of saying that this trend has begun.

extended gains, with U. S. crude futures hitting a three-year high on a tight supply balance due to OPEC-led production cuts and a sharper fall in U. S. crude inventories.

Rising could fan inflation down the road, which could be detrimental to some countries that have been prone to high inflation.

U.

S. Intermediate (WTI) crude traded at $63.42 a barrel, up 0.7 percent for the day, after having risen as high as $63.57 earlier.

Brent crude rose 0.5 percent to $69.15 per barrel, staying near its highest level since mid 2015.

In the currency market, the yen rose to its highest in over a month, extending the previous day's gains after the of trimmed the amount of long-dated bonds it is buying.

While the move was in line with the BOJ's subtle reduction in its bond buying over the past year, or 'stealth tapering', the reaction highlighted how sensitive are to a pullback in Japan's massive stimulus. [nL4N1P41ZO]

"I don't think yesterday's operation is a hint of a policy change. But it highlighted the fact that unwinding of central stimulus will be a main theme this year. We could see more moves like this," said a at a U. S.

The Japanese bond yield ticked up to 0.080 percent, the top of its range in the past several months.

Against a basket of currencies, the dollar was down 0.2 percent.

The BOJ's move also helped to raise the 10-year U. S. bond yield above its December high to 2.573 percent, the highest since March last year, from 2.482 percent late on Monday.

SHARES PULL BACK

European shares traded slightly lower, with most sectors except financials in the red as concerns grew over the direction of the bond market.

The pan-European index was down 0.1 percent while the FTSE edged up 0.2 percent as a lower sterling helped British dollar earners.

The equity index, which tracks shares in 47 countries, was flat.

For Live blog on European and UK stock open a window on Eikon by pressing F9 and type in 'Live Markets' in the search bar

Asian shares flinched from testing their 2007 record peak as investors booked profits in while hit three-year highs due to production cuts and a fall in inventories.

MSCI's broadest index of shares outside slipped 0.5 percent after six straight days of gains that had taken it within a stone's throw of the record high touched in November 2007.

shares led the decline with a 1.4 percent fall as extended losses. The tech company's profit guidance disappointed investors and raised worries the memory chip boom may be coming to an end.

Japan's Nikkei also shed 0.3 percent, slipping from 26-year highs hit the day before.

"The rally has been a bit too fast. Investors are taking profits in high-flying hi-tech shares. But the earnings and economic outlook in remains solid," said Yukino Yamada, at

Some investors said risk sentiment had been boosted by an apparent easing in tensions in the after North and agreed to future talks in their first official dialogue in more than two years. [nL4N1P3511]

welcomed what it said was a first step to solving the North Korean nuclear weapons crisis, even though said those were aimed only at the and not up for discussion with [nL1N1P40UE]

(Reporting by Ritvik Carvalho; additional reporting by Abhinav Ramnarayan in and team; Editing by Catherine Evans)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, January 10 2018. 15:19 IST
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