Bonds in Europe led a global selloff that lifted the two-year Treasury yield to levels last seen in 2007 as ECB policy makers joined their U.S. Federal Reserve counterparts in signaling aggressive tightening.
Bonds in Europe led a global selloff that lifted the two-year Treasury yield to levels last seen in 2007 as European Central Bank policy makers joined their Federal Reserve counterparts in signaling aggressive tightening. Stocks sank with US futures and the dollar climbed.
The Bloomberg Dollar Spot Index pushed toward the record hit last month as investors sought a haven from spiking volatility. The US two-year yield, sensitive to expectations around Fed policy, hit 3.47 per cent in Asian trading, the highest since the global financial crisis. The 10-year yield climbed to about 3.10 per cent.
“We maintain our view that the Fed will raise rates by another 100 basis points by year-end, with risks for more if inflation does not slow in line with our forecasts,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “With rates likely to stay higher for longer, our base case is for further volatility, earnings downgrades, and higher-than-expected default rates over the course of the next year.
ECB officials read from a similar script. Austria’s Robert Holzmann and Dutch colleague Klaas Knot both floated the prospect of an unprecedented three-quarter point hike at their meeting in September. Executive Board member Isabel Schnabel warned that the likelihood of inflation expectations becoming unanchored is uncomfortably high.
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