Treasuries Tumble on Stimulus Bets as RBS Sees Further Selloff

  • U.S. 10-year yield set for biggest weekly rise since November
  • Investors grow cautious on Treasuries after record rally

Treasuries tumbled as the prospect of stimulus from London to Tokyo sapped demand for haven assets with yields near historic lows. Strategists at Royal Bank of Scotland warned of a further selloff.

Benchmark 10-year note yields rose for a third day this week after touching a record low July 6. Treasuries and other haven assets including the yen have lagged as stock markets rally amid speculation Japanese Prime Minister Shinzo Abe will recharge monetary stimulus there after increasing his majority in weekend upper house elections. The Bank of England unexpectedly kept its key interest rate unchanged on Thursday, while signaling more stimulus will come in August.

Treasuries are reversing a rally that was sparked in part by concern that Britain’s June 23 vote to exit the European Union would slow global economic growth. Longer-dated U.S. bonds surged as investors sought alternatives to sub-zero yields in Europe and Japan after central banks there adopted negative rates. The gains were reinforced last week by Japanese fund managers buying the most overseas bonds ever as local yields plunged. After the Treasuries rally coincided with stocks rising to all-time highs, some investors and strategists have grown cautious.

“We’ve seen a lot of investors jump on this idea that low global yields and easier monetary policy are going to continue for the foreseeable future,” said John Briggs, head of strategy for the Americas in Stamford, Connecticut, at RBS Securities Inc., one of the 23 primary dealers that trade with the Fed. “But when you get everyone saying yields are never going to rise again, the effect gets overdone.”

The benchmark U.S. 10-year note yield rose six basis points, or 0.06 percentage point, to 1.54 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The 1.625 percent security due in May 2026 declined 18/32, or $5.63 per $1,000 face amount, to 100 26/32.

Briggs is calling for 10-year yields to rise as high as 1.75 percent this month as part of a market “correction” he anticipates. “At some point the last buyer has come in and people don’t need bonds anymore,” he said.

U.S. 30-year bond yields rose eight basis points to 2.25 percent.

Traders assign about a 37 percent probability to a Federal Reserve interest-rate hike this year, according to futures data compiled by Bloomberg.

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