Cue Navin: “They hate these bonds! Stay away from the bonds!”
G7 yields moved higher still on Tuesday, when unbowed vigilantes pushed the envelope amid bubbling oil prices, rate-hike speculation, budget worries and the specter of a very heavy September IG slate.
On that latter point, corporate America will likely sell well more than $200 billion in debt during the post-Labor Day tsunami, magnifying oversupply concerns that’ve bedeviled the US long-end all year.
Between that, the resumption of open hostilities in the Gulf and the perception that meaningful fiscal reform across the developed world isn’t on the cards, bonds have no friends. On Tuesday, 10-year yields in Japan breached 3% for the first time in three decades.
The figure above also shows you the yield on 30-year gilts which, at 5.90%, was the highest since 1998 and more than 100bps above the Liz Truss panic highs. Yields on UK 10-year bonds were the highest since 2008.
This is getting a little dicey. In addition to the big-picture, post-pandemic “We’re not in Kansas anymore” zeitgeist responsible for ending the 40-year bond bull, there are a number of other structural shifts afoot, including the above-mentioned high-grade corporate supply overhang and the read-across from suddenly competitive JGBs.
The inexorable rise in Japanese yields makes JGBs increasingly attractive to the country’s institutional investors. The prospect of repatriated capital’s daunting, and it showed up Tuesday in Australia, where 10-year yields soared.
As the figure above shows, the one-day increase was the most pronounced since April and among the five largest single-session increases since the week following “Liberation Day.”
Note that five-year yields in Japan hit a record on Tuesday. Yields on 10-year bunds were the highest in 15 years, benchmark OAT yields the highest since the GFC and long bond yields in the US back near 5.30%, right where they were when Scott Bessent stepped in to cap them last month. (Mission not accomplished, Scott.)
10-year yields in the US were 4.80% which, as BMO’s Vail Hartman noted, “mark[s] a 16bps increase from last Tuesday’s close.” That’s a pretty sharp move over the short space of a week and, as Hartman observed in the same note, “daily momentum measures [are] skewed bearishly.”
Recall that the cycle high for benchmark US yields was 5.02% on October 23, 2023. If we get back there — i.e., if and when 10-year US yields sport a five-handle again — I’ll try to catch the falling knife.
Not investment advice. Don’t try that, or anything else I’ve ever done for that matter, at home.
