US Treasuries sell off as investors fret over long period of high rates

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Long-term Treasury yields hit multiyear highs and the dollar climbed on Monday as investors took cues from central bankers and prepared for a lengthy period of high US interest rates.

The yield on the benchmark 10-year US Treasuries rose 0.10 percentage points to 4.54 per cent, their highest level in 16 years, while that on the 30-year note was up 0.14 percentage points to 4.66 per cent, the highest level since 2011.

In Europe, the yield on the 10-year German Bund, the regional benchmark, rose to 2.81 per cent, also its highest level since 2011. Bond yields rise as prices fall.

Global government debt has sold off in recent days as central banks suggested the global cycle of interest rate rises is nearing its end, but signalled interest rates would need to stay high to tamp inflation. The US Federal Reserve last week held interest rates at their highest level in 22 years, but published projections showing fewer rate cuts in 2024 than markets had forecast.

“We have long thought that the equity market has been too aggressive in pricing in rate cuts,” UBS analysts wrote on Monday. “A data dependent Fed has no incentive to sound soft on inflation.”

Some officials have also left the door open to further rate increases. Chicago Fed president Austan Goolsbee on Monday said above-target inflation posed a greater risk to the economy than tight policy.

“Many market participants have been investing on an assumption that rates would decline shortly after reaching a peak,” said Tom Hopkins, portfolio manager at BRI Wealth Management. “However, with economies remaining resilient and the labour market remaining tight, there is more of a sense that rates will be held at or close to current levels well into next year.”

The dollar index, a measure of the greenback against six peer currencies, rose as much as 0.5 per cent to eclipse the high it struck during March’s regional banking crisis and hit its strongest level since November last year.

Wall Street’s benchmark S&P 500 closed 0.4 per cent higher, led by the energy and materials sectors, and the tech-heavy Nasdaq Composite advanced almost 0.5 per cent.

In Europe, the region-wide Stoxx Europe 600 fell 0.6 per cent and Germany’s Dax lost 1 per cent. The downturn spread from China earlier on Monday, where declines in the once-dominant property sector dragged Hong Kong’s Hang Seng down 1.8 per cent and the CSI 300 down 0.7 per cent.

Asian markets were shaken by news that Chinese property giant Evergrande could not issue new debt owing to an investigation into its principal subsidiary, Hengda Real Estate Group. Its shares dropped more than a fifth and came two days after it warned it was cancelling some creditor meetings to reassess terms for its restructuring.

The downturn reverberated across China’s faltering property market, with developer Longfor down 6.5 per cent, and Country Garden giving up 7.7 per cent. The Hang Seng Properties index lost 4.2 per cent in Hong Kong.

China’s property sector, which normally accounts for more than a quarter of activity in the world’s second-largest economy, has stumbled since the start of the year as consumer demand struggled to recover after three years of severe coronavirus pandemic restrictions.

Investors are preparing for data on inflation in the eurozone this week in the hope of gauging policymakers’ plans for future rates. There are growing concerns that recent oil supply cuts could fuel a second wave of inflation globally.