Economy

Treasury yields hit 10-month high; world stocks extend 2018 rally

Treasury yields hit 10-month high; world stocks extend 2018 rally

Benchmark U.S. Treasury yields hit a 10-month high on Tuesday after the Bank of Japan tweaked its bond-buying programme, while stocks in world indexes continued their flying start to the year.

The pan-European FTSEurofirst 300 index .FTEU3 lost 0.46 percent and MSCI's gauge of stocks across the globe .MIWD00000PUS shed 0.11 percent. However, the exit of a major buyer of US Treasury bonds from the market would add significant pressure to prices.

"What we are seeing now is simply the market struggling to defend the levels it had been trading before". The S&P 500 lost 8.51 points, or 0.309309 per cent, to 2,742.78.

"The latest rise (in yields) is caused by the news that Chinese officials are recommending lower purchases of U.S. Treasuries for their FX reserves", said Mizuho strategist Antoine Bouvet, referring to a Bloomberg report.

There have been numerous selloffs in the bond market the past five years, but each rout turned out to short lived as the market inevitably recovered thanks, in part, to central bank largesse.

USA 10-year Treasury yields, lifted on Tuesday by the BoJ news, hit fresh 10-month highs around 2.60 percent on Wednesday after a Bloomberg report that Chinese officials are recommending lower US government bond purchases.

Analysts also said rising oil prices could have sparked the rise in long-term yields this week, as it could fan inflation further down the road and force central banks to quicken the pace of interest rate rises.

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But that guidance, and its ability to anchor borrowing costs, could be put to the test if the eurozone economy continues its strong expansion, inflation creeps up and markets sense a rate rise may be coming sooner rather than later.

LONDON, Jan 9 (Reuters) - Euro zone government bond yields rose on Tuesday, following a wave of new debt issuances from the bloc's top-rated issuers and a rise in US and Japanese yields. It earlier rose to 2.597 percent, the highest since March 15.

The switch in focus to the timing of an European Central Bank rate rise also means inflation data could have a greater impact on markets than in recent years, analysts said.

The yen rose to its highest in over a month against the dollar, extending the previous day's gains after the Bank of Japan trimmed the amount of long-dated bonds it is buying.

The dollar index .DXY fell 0.48 percent, with the euro EUR= up 0.48 percent to $1.1992.

Investors are eagerly trying to glean information about the tightening of monetary policy across the advanced economies, as central bankers consider how to slow or stop the purchases of government bonds, known as quantitative easing, which have sustained the bond markets in the aftermath of the financial crisis.

"Japanese yields have been rising and this has been reinforcing the move on the yen", Thu Lan Nguyen, a Frankfurt-based FX strategist at Commerzbank.


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