Bonds Everywhere Suffer as Rate-Hike Fears Swamp Traders

Global bonds are slumping after two shock interest-rate hikes this week served traders a reality check that central banks are far from done fighting inflation.

Shorter-maturity Treasury yields are close to their highest since March, while their Australian equivalents have jumped to levels last seen more than a decade ago. Investors are back ditching sovereign debt after the Bank of Canada joined the Reserve Bank of Australia in surprising markets with more rate hikes to combat stubbornly fast consumer-price gains.

The tightening is convincing traders to rethink their bets of Federal Reserve rate cuts later this year, underscoring the threat that the battle against inflation may be far from over.

“Bond markets face stiff headwinds from multiple directions,” said Markus Allenspach, head of fixed income research at Julius Baer. “We have to admit that the disinflation process is slower than we had hoped for.”

Fresh jitters over a prolonged rate hike cycle risk paving the way for a renewed surge in volatility across global risk assets. But just like during last year’s hikes, the concerns also put traditional havens in the firing line — a gauge of US Treasuries fell more than 1% in May as funds repositioned.

Global Bond Yields Extend Rebound | Year-to-date change in two-year yields