Global bond markets weakened on Friday as investors reckoned with a tepid Treasury auction result and as data showed a rush to cash after weeks of volatile trading.
Yields on the US 10-year note rose 0.04 percentage points to 1.67 per cent, the highest since Monday, as investors sold the debt. The move higher in yields began late on Thursday after the US Treasury department met below-average investor demand for $62bn worth of seven-year securities.
“The weak seven-year auction is a timely reminder that the backdrop points to higher rates,” ING analysts said.
Investors have been wary of the inflation risk that comes with holding government bonds, as President Joe Biden’s vast stimulus plan raises expectation that the US economy will run hot.
Traders ploughed $45.6bn into cash funds in the week to Wednesday, the largest flow since the depths of the coronavirus crisis in April 2020, according to Bank of America research based on EPFR data. The report also showed $1.8bn flowing into Treasury Inflation-Protected Securities (TIPS), the third-largest influx on record, as investors continued to position for higher US price growth.
European government bonds weakened, with yields on the German and UK 10-year securities both rising about 0.045 percentage points.
Oil markets remained unsettled as efforts to unblock the Suez Canal and restore global trade routes continued to face difficulties.
Paola Rodríguez-Masiu, senior oil market analyst at Rystad Energy, said traders were taking the view that the canal blockage was “becoming more significant for oil flows and supply deliveries than they previously concluded”.
Brent crude, the international benchmark, rose 1.7 per cent to $62.95 a barrel, while West Texas Intermediate, the US benchmark, gained 1.8 per cent to $59.64 a barrel.
In stocks, the Europe-wide Stoxx 600 rose 0.65 per cent, while the UK’s FTSE 100 was up 0.7 per cent.
“I think what’s interesting in Europe is the contrast between equity markets and health woes,” said Sebastian Mackay, multi-asset fund manager at Invesco, adding that recent economic data suggested that economies in Europe were continuing to grow, despite faltering rollouts of Covid-19 vaccinations.
Futures markets indicated a mixed opening to Wall Street trading. Futures tracking the blue-chip S&P 500 rose 0.2 per cent, while those for the tech-heavy Nasdaq 100 slipped 0.33 per cent.
“We’re probably in a cyclical upswing for equities,” said Mackay. “The rise has been fuelled by the prospect of the reopening of the global economy, but valuations are already quite stretched.”