The monthslong rout in global government bonds is getting messier and weirder. For weeks, the bonds of most developed economies have moved broadly in tandem, but not Thursday. A flight to bonds considered safe drove U.S. Treasury yields lower, while those of French, Italian and Greek bonds jumped in a sudden divergence helped by the unwinding of popular hedge-fund trades centered on Europe, according to fixed-income analysts and traders.
The moves represented a reprieve of sorts for the U.S., a day after the yield on the 10-year Treasury note had reached its highest level in more than 24 years. But it was also a reminder of how extended selloffs in bonds can cause unexpected problems. "Markets have a faint smell of a crisis in the making," said Ed Al-Hussainy, a portfolio manager at Columbia Threadneedle.
Thursday's action exposed the complicated nature of this year's bond selloff. Yields across the developed world have been propelled higher since March on concerns that rising energy prices spurred by the Iran conflict will force central banks to take aggressive action to contain inflation. A recent run of strong U.S. economic data has added to the global pressure.
Investors say the latest selloff in Europe began as a ripple from the U.S. The selling intensified and turned chaotic, with bond markets in France, Greece and Italy swinging between gains and losses. France's 10-year bond swung as much as 0.16 percentage point intraday. The pressure on France has investors obsessing over "the spread," which ballooned to 1.4 percentage points Thursday, the highest level since the eurozone debt crisis.
Source: Wall Street Journal Markets · Summarized by HeadlinesBriefing