Adding fuel to market turmoil was US President Donald Trump’s plan to pay voters US$5000 each if Republicans retain control of Congress at November’s midterm elections.
Moves in US Treasuries were mirrored in the other major bond markets around the world, coinciding with the European Central Bank lifting rates to 2.5%.
Local markets were trying to “calibrate” to overnight moves, ANZ senior strategist David Croy said.
“Everything’s come to a head here and market participants have basically given up trying to figure out when we may see tensions in the Middle East simmer down.
“Essentially we’ve got a case of capitulation on our hands here as bond yields continue to press higher.
“What’s happening globally is having an impact locally as well and we are seeing yields moving higher across the curve.”
The gap between the short and long end of the local bond curve was also widening, in line with the trend overseas, bringing a steepening of the yield curve.
“You would have to go back to 2010 to find [bond yield] levels that were consistently higher than here,” Salt Funds managing director Matt Goodson said.
Bond markets were reacting to the renewed inflationary impact of oil prices, with more concerns about the US fiscal position, he said.
“There are two components to it. One is bond market vigilantes revolting at the US fiscal position, which is only worsening, and secondly the move overnight was caused by the inflation component.”
Goodson said US inflation data for August, due out early tomorrow morning NZ time, would have an important bearing on what the US Federal Reserve does next.
Reuters reported the Fed is now more likely to raise short-term borrowing costs at its meeting next week.
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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