The aggressive easing policies of foreign central banks have been a major factor in pushing down government bond yields this year, so any shift in their approach stands to have a large impact on the markets, analysts say.
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The yield on Australian 10 year bonds jumped 10 points on Friday and they closed the week around 1.96%.
US markets rose on Monday as investors wondered when the Federal Reserve will raise its benchmark federal funds rate.
Fed governor Lael Brainard, (a possible US Treasury secretary if Hilary Clinton becomes President), speaks in the US and will be watched closely to see if she joins the chorus of rate rise urgers.
As bond yields across markets hit multi-month highs for a second session on Monday, global investors were harshly reminded that central banks may be out of both ammunition and ideas to stimulate economies – eight years after the global financial crisis provoked an unprecedented flood of central bank liquidity to keep markets afloat.
The poor performance from USA markets on Friday added pressure to markets across the world, with both Asia-Pacific indexes and European markets tumbling on Monday due to Fed jitters.
Elsewhere on the data front, USA import prices fell 0.2 percent, more than the expected 0.1 percent drop. Brainard’s comments were the last from a Fed official ahead of next week’s meeting, one which carries slim odds, but a chance, nonetheless, for a rate hike.
Earlier, the gap between five-year Treasury note yields (US5YT=RR) and 30-year bond yields widened as far as 123.40 basis points, the widest since July 1.
Any hint of hawkishness is likely to put further pressure on bonds and equities prices.
“Though China s industrial production and retail sales beat expectations, people won t expect data to continue to improve”, Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong, told Bloomberg News.
As a result sharemarkets across the world fell the most since June on Friday, hit by rising expectations that the Federal Reserve could be closer than thought to an interest rate hike. The Dow [.DJI] shed 2.13 percent on Friday, while the S&P 500 lost 2.45 percent and the Nasdaq 2.54 percent. It has since pared some of those gains and was last sitting near 0.034 percent.
In the forex market, the sudden bout of risk aversion benefited safe havens such as the yen while hitting carry trades in higher yielding currencies including the Australian dollar.
The Aussie has lost 2.25 per cent against the yen in two sessions to stand at 76.52, while the Japanese currency was firm on the US dollar at 102.06. Sterling-dollar traded at $1.3219 from around $1.3200 just before the data and $1.3193 a day earlier.
The ICE U.S. Dollar Index, which measures the buck against a basket of six currencies, slipped 0.1%.
Adding to the jittery mood on Monday was news that Democratic candidate Hillary Clinton fell ill at a memorial ceremony for the victims of the 9/11 attacks in NY and had been diagnosed with pneumonia.
That storm, according to Parry, includes geopolitical risks from North Korea’s nuclear test on Friday and trading disruptions in China because of festival holidays later this week.
Oil prices fell, extending recent losses.
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Brent crude was off 82 cents at $47.18 a barrel, while USA crude lost 85 cents to $45.03.
