Bonds tumbled across Asia on Thursday following Federal Reserve Chairman Jerome Powell’s most recent high point, with Australian and New Zealand benchmark interest rates rising to fresh highs.
With growing expectations that the Fed’s stance will spur faster austerity from central banks around the world, New Zealand’s 10-year yield reached its highest level since November 2018, while its Australian counterpart rose to the top of the country’s meltdown in the bond market in October. Interest rates also rose in China, Japan and South Korea.
The sense that bonds globally are facing further sell-offs after last year’s worst route since 2005 was reinforced by Statistics NZ, which reported that inflation was 31 years high. The region’s shares also fell, a measure of global volatility across assets hit a year-high, and two-year government yields extended their jump from one day to the Asian morning.
Wednesday’s treasury route was led by shorter notes, narrowing the gap between interest rates on these securities and those on longer maturities. Such flattening movements often arouse investors’ concern that a central bank will end up raising interest rates so quickly that it harms rather than controls economic activity. US two-year interest rates rose two more basis points on Thursday to 1.17 percent, after jumping the most since March 2020 on Wednesday.
Three-year South Korean interest rates rose as much as seven basis points to 2.23 percent, the highest since June 2018, while Japanese interest rates rose across the curve, including a 1.5 basis point rise in the 10-year interest rate targeted by the central bank.
Chinese 10-year government interest rates extended a rise from the 20-month low, which was touched earlier in the week, and rose a basis point to 2.73 percent on Thursday. The return premium on 10-year bonds over government bonds narrowed to near the lowest since April 2019.
Australia’s 10-year interest rates rose as much as 12 basis points to 2.06 per cent, while three-year interest rates rose above 1.50 per cent for the first time in almost three years.