In the wake of the bond sell-off on Monday, October 21, Treasury bond prices have plunged, influencing markets from Australia to Japan today. Investors are reevaluating expectations surrounding the Federal Reserve’s potential slowdown in interest rate cuts, a trend that could disrupt bond strategies globally.
During trading today, Australia’s 10-year government bond yield surged by 10 basis points, while New Zealand’s equivalent jumped by 7 basis points. In Japan, yields increased by 2 basis points to reach 0.975%, nearing a two-month high.
The core reason driving the global bond market sell-off lies in investors’ deep reflection on the Fed’s interest rate cut outlook. A robust U.S. economy, the strong likelihood of Trump’s election victory, and cautious remarks from Fed officials about easing measures have all unsettled traders’ previously optimistic predictions about rising bond prices.
Bloomberg strategist Reynolds commented, “U.S. government bonds may face challenges in the coming months as the economy remains resilient and supply concerns rise, leading to a strong bias toward higher yields.”
TD Securities’ senior rates strategist Newhauser cited New Zealand bonds as an example, stating, “Even in a very dovish market environment, we are witnessing sell-offs. He noted that it is possible the Fed could hold steady for the next six months, an aspect that the market hasn’t fully priced in.”
Overnight index swaps indicate that a rate cut from the Fed next month has become less certain. Institutions, including Apollo Global Management, now anticipate that the Fed may keep rates unchanged at its November meeting. T. Rowe Price goes even further, projecting that the yield on the 10-year Treasury could rise to 5% next year due to shallower rate cuts from the Fed and improving economic growth.
