A global rout in government bonds deepened yesterday as long-term US and European borrowing costs reached their highest level this year, spreading anxiety into stock and other markets.
The standoff between Greece and its lenders, together with disappointing data on private US jobs growth, kept a lid on the more than a week-long rise in benchmark US and German yields, underpinned by reduced worries about deflation in the eurozone.
“If the rise in yield resulting from dumping Bunds is compounded into other G10 government bonds by possible signs of oil-driven reflation currents, then stocks will have to take notice,” said City Index Chief Markets Strategist Ashraf Laidi in London.
Oil prices hit their highs of the year on shrinking US inventory and conflict in the Middle East.
The month-long rally in oil boosted energy shares but was not enough to stem further losses on Wall Street and European equities, which rebounded from initial lows.
Data showing some life in European business activity at the start of the second quarter stoked the euro to a 10-week high against the dollar. The euro was up 1.3 per cent at $1.1332 . The dollar index was down 0.9 per cent at 94.180, retreating from a one-week high of 95.946. Germany’s 10-year yield hit a 2015 high just under 0.6 per cent. The yield has more than tripled in a week and risen 10-fold in just three weeks.
Benchmark 10-year yields on Spanish, Italian and UK government bonds also hit year-highs before retreating.
The 10-year US Treasury yield touched 2.249 per cent, within 1 basis point of its 2015 peak. It retreated from its session high after payroll processor ADP said US companies added 169,000 workers in April, fewer than analysts forecast.
A broad bounce in commodities saw oil and copper prices rise to their highest levels this year.
Brent crude was last up 59 cents or 0.87 per cent at $68.11 a barrel. US crude was last up 74 cents or 1.23 per cent at $61.14 per barrel.
Copper futures in London fell 1.3 per cent to $6,396 a tonne, retreating from their highest since mid-December set on Tuesday.
The rise in commodity prices was unable to stop the reversal of stock bets linked to a protracted period of disinflation in Europe.
Traders now worry the European Central Bank will not need to provide additional stimulus given nascent signs of price stability in the region.
Greece’s debt situation remained a worry even as the cash-strapped nation made a small interest payment to the International Monetary Fund.
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