Bond Market Tantrum Cools as Headwinds Emerge From U.S. to China

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The bond market tantrum is cooling off.

After a selloff that lasted for most of the past two weeks, government securities are starting to recover, based on a Bank of America Corp. index. Signs of mixed economic growth from the U.S. to China to Germany are reviving demand for the haven of fixed-income assets.

For anyone looking for evidence the worst is over, benchmark 10-year Treasury yields at Monday’s level of 2.13 percent have risen beyond the level economists project for mid-year. The yield will be at 2.08 percent by the end of June, based on a Bloomberg survey.

“There are economic headwinds, and that’s reason to buy bonds,” said Hiroki Shimazu, senior market economist at SMBC Nikko Securities Inc. in Tokyo. “The market will be much more stable.”

The benchmark U.S. 10-year yield fell one basis point, or 0.01 percentage point, as of 6:50 a.m. in London, Bloomberg Bond Trader data show. The price of the 2 percent note due in 2025 climbed 1/8, or $1.25 per $1,000 face amount, to 98 26/32.

Bonds in the Bank of America Merrill Lynch Global Sovereign Broad Market Plus Index lost 1.6 percent in the past month, reviving memories of the so-called taper tantrum of 2013. That was when then-Federal Reserve Chairman Ben S. Bernanke surprised markets by appearing to signal the central bank was planning to reduce the bond purchases being conducted at the time.

Bonds Revive

Government securities began to revive at the end of last week. The yield on the securities in the Bank of America index fell to 1.27 percent, from 1.31 percent on May 6, which was the highest level this year. The yield is still less than the average of 2.35 percent for the past decade.

Thank the latest signs of uneven growth for a break in the selloff.

U.S. job gains for April almost matched expectations among economists surveyed by Bloomberg, though March’s figure was revised down, making it the smallest increase since June 2012, data last week showed.

China cut interest rates for the third time in six months to support its economy, with the reduction taking effect Monday. German industrial production unexpectedly declined in March, data last week showed.

Judging by economists’ forecasts, bonds are having a respite, not starting a bull run. U.S. 10-year yields will advance to 2.42 percent by Dec. 31 and the Fed will raise interest rates this year, the Bloomberg surveys show.

An investor who bought 10-year notes today would lose about 1 percent if the forecast is correct, according to data compiled by Bloomberg.

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