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Bond Market


The yield on the benchmark US 10-year Treasury rose to above 1.6% on Friday, the highest in 4 months, after having fallen to as low as 1.56% earlier in the session as investors are digesting the latest labor report. The US economy added 194K jobs last month, the least this year and well below forecasts of 500K while the unemployment rate declined to 4.8% and average hourly earnings edged up.


The yield on UK 10-year government bond rose to 1.1% in early October, hovering around its highest level since May 2019, as investors are worried about mounting price pressures in the global economy as well as expectations that major central banks might start tightening monetary policy soon. Headline inflation in the UK hit a nine-year peak and is expected to remain high of some time, amid a rally in oil prices and record cost increases for natural gas, coupled with supply chain disruptions related to Brexit and labor shortages. The Bank of England signaled it could hike interest rates as early as this year, after saying last month the case for policy tightening appeared to gain some momentum while it nudged up its forecast for inflation at the end of the year to over 4%. In addition, the US Federal Reserve is likely to start reducing its massive bond-buying scheme in November, while the New Zealand's central bank hiked interest rates for the first time in seven years.


The yield on the benchmark Japan 10-year JGB jumped to a 17-week high of 0.08%, tracking US Treasury yields, which rose to a 4-month high as the case for the US Fed to slow the pace of its asset purchase program strengthened amid soaring energy prices. At the same time, the Bank of Japan Governor said wage pressures were under control because firms stuck to the tradition of retaining jobs and lowering salaries during the pandemic-related crisis. Also, Japan’s new finance minister said he will keep monetary and fiscal stimuli, while calling on the BoJ Governor to ensure stable market and corporate funding.


The yield on Australian 10-year government bond rose to 1.6% in early October, its highest since mid-June, amid concerns over rising inflation due to a surge in energy prices and supply bottlenecks, as well as prospects of monetary policy tightening by central banks across the globe. The New Zealand's central bank hiked interest rates for the first time in seven years and said further moves were likely. Meanwhile, the Reserve Bank of Australia is likely to keep interest rates at record low levels until at least 2024, reflecting years of weakness in domestic wage growth and inflation.


Germany's benchmark Bund yield rose above -0.2% in early October, hovering around its highest level since end-June, as the rally in oil prices intensified concerns over inflationary pressure and increased expectations of potential monetary policy tightening across the globe. European Central Bank President Christine Lagarde said on Tuesday she still expected supply shortages or rising energy prices to be transitory, repeating the bank's narrative that the inflation spike will wane next year, while recent comments by policymakers Robert Holzmann and Francois Villeroy de Galhau suggest subtle shifts of tone.

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