Global risk assets were at the epicenter of a selling spree Friday as investors kicked off the second half of the year with recession concern front and center.
Treasuries extended their slump in New York, driving the yield on the benchmark 10-year note up by the most in more than three weeks, as renewed inflation concerns and economic data supported expectations for multiple Federal Reserve rate hikes in coming months.
U.S. government bonds dropped across the curve, with the two-year yield up two basis points to 2.47% as of 11:28 a.m. in New York. The 10-year yield rose two basis points to 2.85%, while a long-maturity Treasury ETF suffered a nearly 30% decline from a peak in August 2020 -- a record drawdown.
It’s the next big market call that could enrich traders across Wall Street: The raging global energy crisis and ever-more hawkish central banks knock key economies into 1970s-style stagflation. It’s a long shot for now, but anxiety is building among money managers that this market scenario -- out-of-control inflation just as growth slumps -- will eventually come to pass, especially in Europe.
Dethroning the dollar is easier said than done. That’s the conclusion of investors after Washington’s freeze of Russia’s dollar holdings created fresh impetus among central bankers to rethink the security of access to foreign-exchange reserves. The move fueled speculation that countries such as China could redouble efforts to unshackle itself from greenback-denominated financial systems and look for alternatives.
Treasuries slid and yield-curve premiums shrank to the lowest in almost two years amid increased speculation the Federal Reserve will deliver more than a quarter-percentage point rate hike in March.
Bond traders searching for an opportunity to challenge central banks are starting to look Down Under, where a likely showdown over yield-curve control is set to test the power of policy makers to contain the next wave of reflation bets.
It isn’t hard these days to find investors trumpeting the demise of the decades-long bull run in Treasuries.
A rapid souring in financial markets on Monday highlights how even the most positive news for the world economy is no fillip to risk assets weighed down by the anchor of the global bond market.
Yields on two-year Treasury yields briefly printed a record low under 0.1% on Thursday as cash trading got underway in London after a holiday in Asia.
