WASHINGTON: Sovereign bonds are rising around the world as concern the Middle East conflict will derail global economic growth revives demand for beaten-down government debt.
US Treasuries advanced with Australian and Japanese bonds in Asian trade on speculation that surging oil prices may be just a harbinger of a protracted global fuel shortage.
That’s helping boost demand for government debt that until recently had been under selling pressure as fears over quickening inflation outweighed their traditional haven appeal.
“The market is now letting its imagination run wild about what the world might look like in a month’s time if there is no resolution by then” to the Middle-East war, said Gareth Berry, strategist at Macquarie Group Ltd.
“Parallels with Covid-19 are already being identified as economies at risk of shutting down – this time due to lack of fuel.”
The bond rally comes after weeks of selling that was driven by surging oil costs and concern over potential central bank interest-rate hikes.
The recent shift in focus toward slowing economic growth is easing fears that central banks will need to adopt an aggressively hawkish stance to control inflation.
Yields on Treasury two-year notes, among the securities most sensitive to shifts in monetary policy, fell three basis points to 3.88%, after sliding seven basis points last Friday. Those on benchmark 10-year debt fell three basis points to 4.4%.
Australia’s three-year yields slid as much as nine basis points to 4.71%, while yields on Japanese two-year debt declined two basis points to 1.36%.
“The bull-steepening trend is likely to extend as investors pivot toward concerns about a growth slowdown after spending much of March pricing in a war-induced surge in inflation expectations,” said Bloomberg Markets Live strategist Garfield Reynolds.
Treasury 10-year yields should only be around 3.9%, significantly lower than the current level of above 4.4%, according to Apollo Global Management.
“The bottom line is that the 10-year yield is 55 basis points higher than where it should be, and investors need to think about why,” chief economist Torsten Slok wrote in a note to clients. — Bloomberg
