(Bloomberg) — Bond yields are soaring globally in line with Treasuries as investors preparing for the first Federal Reserve interest-rate hike of the pandemic era set aside concern the outbreak will slow their already fragile economies.
Australia’s bond market — already a focal point during last year’s global spike in yields — is busy selling off even as a spiraling omicron outbreak pushes analysts to further trim forecasts for the nation’s economic growth. The rout Down Under comes as traders bet the Reserve Bank of Australia will follow the Fed in raising rates, despite expectations inflation in the smaller economy will be well below the elevated U.S. levels.
“The contrast between a hawkish Fed and the more cautious RBA approach should mean there’s scope for Australian bonds to outperform,” said Andrew Ticehurst, rates strategist at Nomura Holdings Inc. in Sydney. “There may be some reluctance after those who went long Aussie rates in October got beat up when yield-curve control was scrapped. But it’s a new year now, and omicron is with us, big time, so some investors may consider wading back in to buy bonds here.”
Treasuries extended losses from the London open, with five-year yields rising as much as four basis points to 1.54%, the highest level in two years. U.S. yields had jumped across the curve on Friday after the release of December’s payroll data.
Bond investors are being whiplashed globally as central banks take steps to remove extraordinary stimulus across developed economies. Australia’s yield spiked up in late October after third-quarter data showed underlying inflation was faster than economists predicted. The yield on the April 2024 bond climbed as high as eight times the RBA’s stated target of 0.1% for the security under its yield-curve control policy, convincing it to scrap the program at its November meeting.
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