Bond Rout Deepens to $433 Billion as Bull Positions Unwound

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Losses from the worst global debt-market slump in two years deepened to $433 billion as investors begin to ponder how high yields will climb before stabilizing.

The value of the world’s fixed-income markets dropped to $45.07 trillion on Tuesday from $45.51 trillion on April 17, according to a Bank of America Merrill Lynch index.

Record central-bank stimulus had sent investors piling into debt at the same time that dealers pulled back from making markets -- a combination that saw investors paying a price for holding bonds with yields not far from record lows and the Federal Reserve discussing an increase in U.S. interest rates.

“People fell into a terrible complacency as yields fell to incredibly low levels with central banks pushing on rates,” said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York. “They figured they would be able to get out before the tide turned, but the rug has been pulled out, catching a lot of people off guard and exacerbating the move.”

Investors in U.S. government debt did get a reprieve Tuesday. Yields fell after the Treasury Department’s auction of three-year notes demonstrated there’s no buyer’s strike in the bond market. Treasury auctions of 10- and 30-year securities set for Wednesday and Thursday move prove to be tougher sells.

The benchmark 10-year Treasury note was little changed at 6:22 a.m. London time on Wednesday, with the yield at 2.25 percent.

Here’s how the bond-market losses stack up against other recent selloffs in global bonds:

*April 17 to May 12* What happened: Investors began to question whether the rally that pushed bond yields to record lows has ended after the European Central Bank’s quantitative-easing program appeared to be ending the risk of deflation. Bond market losses: $433 billion

*Feb. 2 to March 13* What happened: After a resurgence in deflation concern, larger-than-forecast gains in U.S. jobs renewed speculation the Fed would begin raising interest rates in the first half of the year. Bond market losses: $1.5 trillion.

*June 14, 2013 to June 30, 2013* What happened: Fed Chairman Ben S. Bernanke touched off a wave of selling known as the taper tantrum when he said the central bank could reduce its bond-buying program if it saw indications of sustained growth. Bond market losses: $1.5 trillion.

*Nov. 4, 2010 to Dec. 15, 2010* What happened: Yields surged as the Fed started a second round of monetary stimulus, prompting concern that the additional QE would eventually cause inflation. At the same time, European leaders struggled to contain the region’s sovereign debt crisis. Bond market losses: $1.95 trillion

(An earlier version if this was corrected to show the right level of the bond market’s value on April 17.)

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