Global bond markets steadied on Friday after a sell-off that pushed US borrowing costs to their highest level since 2002 and sparked volatility in European sovereign bonds. Yields on 10-year US Treasuries nudged 0.01 percentage points higher to 5.24 per cent during early trading in London, and European assets also stabilised after a volatile day of trading on Thursday. The 10-year French government bond yield fell 0.01 percentage points to 4.91 per cent, having jumped as much as 0.1 percentage points on Thursday after the release of a draft 2027 budget reignited concerns over the state of France’s public finances.
Equivalent Italian bonds were flat on Friday morning at 4.71 per cent. The euro rose 0.1 per cent against the dollar to $1.126. Gilts and Bunds also both rallied in early trading.
Thursday’s moves “were reminiscent of the euro crisis in many respects, with sovereign contagion a big talking point,” said Henry Allen, macro strategist at Deutsche Bank. Rates strategists at Dutch bank ING said market sentiment was “turning sour” on Europe’s debt dynamics. The stabilisation in markets on Friday was helped by a fall in oil prices.
The global benchmark Brent crude was down 1.1 per cent at $101.23 a barrel. Investors will be watching Eurozone inflation data on Friday for the latest sign of how the European Central Bank might respond to the energy crisis unleashed by the conflict in the Middle East. Bonds also stabilised in Asia.
Japan’s 10-year yield fell 0.01 percentage points to 3.1 per cent. Global stocks rose on Friday, with the Stoxx Europe 600 climbing 0.3 per cent in early trading and futures tracking the S&P 500 also up 0.3 per cent, although banks remained under pressure globally. HSBC’s Hong Kong-listed stock fell more than 5 per cent, while in Japan Mizuho slipped 1.9 per cent after dropping 2.8 per cent the previous session.
In Europe, Société Générale was down 0.6 per cent, adding to a 5 per cent fall on Thursday. Kenny Ng, a strategist at brokerage Everbright Securities International, said the weakness in banks was related to the bond sell-off, “as they hold global bonds in their asset portfolios”. Investors said they remained on high alert for further selling, and the impact of higher bond yields on global markets. “We could see further spikes in yields,” said Grace Tam, deputy chief investment officer for Asia at BNP Paribas Wealth Management. “That could tighten financial conditions.
That doesn’t bode well for risk assets, especially equities.
Source: Financial Times Markets · Summarized by HeadlinesBriefing