Government bonds slid again, pushing long-end yields to levels not seen in decades. Oil's jump - Brent briefly moved above $102 on Wednesday after fresh attacks by Iran in the Strait of Hormuz - reinforced worries about inflation and the prospect of additional central bank tightening. Traders have been adding to short positions in US government debt, a sign many expect the selloff can continue. As Mizuho International Plc multi-asset strategist Evelyne Gomez-Liechti put it, "We continue to think the market remains caught between attractive outright yield levels and an oil story that refuses to fade."
The weakness in US debt bled into Europe. UK 30-year gilts returned to the 6% handle, and comparable French maturities rose by as much as 14 basis points. Under the hood, a fatter term premium - the extra compensation investors seek for holding longer bonds - has been a key force since the Fed's September meeting.
On Tuesday, Bloomberg Economics data showed the 30-year Treasury term premium at its highest since 2011. "The bond bear market since the start of the year is primarily a story of central bank repricing," said Ralf Preusser, who covers rates at Bank of America.
Long yields respond to oil and deficits at the same time. Market Briefs covers the bond market free every morning.
Swaps now imply about a one-in-four chance the Federal Reserve raises rates this month, and markets have a hike fully reflected by the end of the year. At the same time, ballooning fiscal deficits and the energy shock from ongoing conflict in the Middle East have shoved sovereign yields to multi-decade highs. At 1 p.m. in New York, a $39 billion auction of 10-year notes arrives after a solid three-year sale on Tuesday and will act as a gauge of demand with yields elevated and fiscal concerns still front and center.
Richer yields change the math on bond income, but a higher term premium also means prices can swing more as the market wrestles with inflation risks, policy paths and funding needs. Keep an eye on auction results and how odds for Fed moves shift - they are the quickest tells on whether this selloff still has fuel.
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