Sovereign bond yields rose to the highest level in almost three months as Mohamed El-Erian said the Federal Reserve should raise interest rates.
The yield on the Bloomberg Global Developed Sovereign Bond Index climbed to 0.6 percent Tuesday, the highest since June 23. It has risen from a record low of 0.39 percent in July. Stocks and crude oil both tumbled. El-Erian said traders are obsessing over the possibility of a quarter-point Fed move. The reason: investors have come to bank on monetary policy that has delivered returns “where everything goes up,” he said Tuesday on CNBC.
“Let’s get it over and done with,” El-Erian, the chief economic adviser at Allianz SE and a Bloomberg View columnist, said in the interview. “We’ve become so sensitive to these tiny moves because we are overdependent on the Fed.” The timing probably won’t alter a “ shallow cycle” of increases, he wrote on Twitter Tuesday.
The U.S. 10-year note yield was little changed at 1.74 percent as of 11:23 a.m. in Tokyo on Wednesday, according to data compiled by Bloomberg. The price of the 1.5 percent security due in August 2026 was 97 7/8.
The yield jumped six basis points Tuesday, and Australia’s benchmark followed Wednesday by rising seven basis points to 2.14 percent.
There’s a 22 percent chance the Fed will raise rates when it meets next week and a 57 percent probability of a move by December, according to data compiled by Bloomberg based on futures contracts. The calculations assume the central bank’s benchmark, the rate banks charge each other on overnight loans, will average 0.625 percent after the next increase.
Japanese bonds fell before the central bank meets next week. Long-term yields climbed to the highest level since March, with the 30-year jumping as much as 10 basis points to 0.605 percent. Yields have been rising on speculation the Bank of Japan will limit its purchases of long-term debt.
“Investors are expecting that the BOJ will adopt a more flexible stance on its bond-buying measures and couple that with an additional cut to the deposit rates,” said Katsutoshi Inadome, a senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “Superlong bonds are being sold amid speculation that’s starting to look more of a reality.”
By Wes Goodman.