Bond rout rattles all assets

Wed May 6, 2015 6:24am EDT
 
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By Jamie McGeever

LONDON (Reuters) - A worldwide selloff in government bonds deepened on Wednesday, with the rise in yields to their highest level this year spreading unease across all asset classes and putting stock markets around the world under pressure.

European equities struggled to stop the rot after a rout on Tuesday, as soaring bond yields dampened any relief from a growing consensus that the damaging threat of deflation across the continent may be disappearing.

Instead, investors are not only rushing to get out of low or negative-yielding bonds, but are also questioning the rationale for holding equities in a slow growth environment as the high yields on offer relative to bonds evaporates.

Oil prices jumped to their highest this year, with Brent crude futures now up more than 50 percent from the multi-year trough plumbed as recently as January.

Even top-rated assets sank, with Germany's 10-year yield rising to a 2015 high at just under 0.6 percent. The yield has more than tripled in a week and risen 10-fold in just three weeks, erasing all the gains made this year.

Benchmark 10-year yield on Spanish, Italian and UK government bonds also hit year highs. The 10-year U.S. Treasury yield was within three basis points of a 2015 peak too.

"Another bloodbath in developed fixed income," Royal Bank of Scotland's rates strategy team wrote in a note to clients.

Spain's benchmark yield hit 1.96 percent, Italy's 1.98 percent and Britain's gilt yield broke through 2 percent.   Continued...

 
A pedestrian scratching his head looks at an electronic board showing the Japan's Nikkei average outside a brokerage in Tokyo, Japan, April 30, 2015.  REUTERS/Yuya Shino