Bond markets around the world saw a continued sell-off today as investors nervously eyed Asian central bank actions and prominent investors questioned whether the long-running bond bull market was finally turning.
The yield on the US 10-year Treasury shot up to just short of 2.6 per cent, its highest point since March 2017, while Japanese 10-year Treasuries hit an almost six-month high of 0.087 per cent.
Bill Gross, nicknamed the “bond king” during his time at US investor Pimco, said late last night that his Janus Henderson fund is now shorting government bonds, which have entered a “bear market” as central banks consider reining in their loose monetary policy.
Teresa Kong, manager of the Asia strategic income fund at Matthews Asia, said investors in US Treasuries will struggle to "have returns on the order of magnitude as over the last five years".
"There have been a couple of false starts" to central banks' tightening, she added. "This time around I think it's actually happening."
The drop in prices, which move inversely to yields, was given impetus today by reports that Chinese government officials have recommended slowing or possibly halting US Treasury purchases.
It is unclear whether the recommendations have been adopted by the Chinese government, Bloomberg reported. However, the exit of a major buyer of US Treasury bonds from the market would add significant pressure to prices.
This came after the Bank of Japan dialled back its purchases of longer-term Japanese government bonds, a move which triggered speculation that the central bank could be planning to adjust its quantitative easing purchases.
Investors are eagerly trying to glean information about the tightening of monetary policy across the advanced economies, as central bankers consider how to slow or stop the purchases of government bonds, known as quantitative easing, which have sustained the bond markets in the aftermath of the financial crisis.
Economists and non-governmental bodies, including the World Bank last night, have advised central banks to be careful in withdrawing the stimulus, warning that a sudden rise in borrowing costs for firms could cause a shock to the global economy.
However, Chris Iggo, fixed income chief investment officer at Axa Investment Managers, said that while bonds are expensive, there was no immediate catalyst for lower prices across the board.
He said: “Bond markets enter 2018 with yields low and spreads tight. However, there is very little consensus that bonds will get significantly cheaper anytime soon.
“The global economic outlook is positive but the lack of inflation remains the key factor that is preventing any increase in global interest rate expectations.”