Government bonds fall as traders weigh economic impact of Ukraine war

Global government bonds sold off on Tuesday after Russia launched a new attack in Ukraine and the IMF warns that the war will hurt growth while causing inflation.

Eurozone bonds were hit hardest, while stocks in the region fell, due to funds speak Commodity-importing countries in Europe will be affected more than the US due to rising fuel and food prices caused by the conflict.

German 10-year Shanghai Bund yields rose 0.1 percentage point to 0.94% – the highest level since July 2015 – as lingering inflation prospects in the eurozone thwarted. hindered the appeal of fixed-income payments in bonds and raised expectations that the European Central Bank would lift interest rates.

The UK’s equivalent gilding yield adds 0.09 percentage points to 1.98 per cent. Bond yields are inversely proportional to price.

“Europe is in a more precarious position than the US,” said Mary Nicola, multi-asset portfolio manager at PineBridge. “We see the effects on sentiment and economic activity that are not going to go away.”

“There are concerns about inflation in Europe and expectations of an ECB rate hike are heating up,” said Brian Nick, investment strategist at Nuveen.

The market is now expecting the ECB “to raise rates more in response to inflation than previously thought,” Nick added.

IMF on Tuesday cut its global growth forecast for 2022 to 3.6%, down 0.8 percentage points from the January forecast, which said “the global economic outlook has been severely impaired, largely due to the Russian aggression”. into Ukraine.”

US Treasuries were also under pressure, with yields on policy-sensitive two-year bonds adding 0.07 percentage points to 2.53 percent. At the older end, the yield on the 30-year Treasury note rose above 3% for the first time since 2019.

The moves come as traders await a speech on Thursday by Federal Reserve Chairman Jay Powell, which could offer signs of a sharp hike in interest rates by the US central bank. how strong this year after annual rate Consumer price growth reached 8.5% in March. Several other Fed officials will also speak in the coming days.

On the stock market, the region’s Stoxx Europe 600 share index fell 1.1%, while London’s FTSE 100 lost 0.2% and Germany’s Xetra Dax fell 0.7%.

On Wall Street, the benchmark S&P 500 stock index rose 0.5% in early trades after stalling for most of Monday’s trading session. The tech-focused Nasdaq Composite added 0.2%.

Line chart of UK 10-year gilt yield (%) showing it hit its highest level since 2015

Investors are also awaiting a week of corporate earnings for clues about how the business world is grappling with inflation and an uncertain growth outlook. The Netflix streaming team will release quarterly numbers on Tuesday, with analysts watching to see if a trend resulting in UK households canceling subscriptions to cope with rising costs of living will be replicated elsewhere.

Gold price, reached highest point in a month on Monday as concerns about economic growth spurred investors to buy the haven asset, falling 0.8% to $1,964 an ounce.

Brent crude fell 3% to $109.67 a barrel after rising in recent days.

In Asia, Hong Kong’s Hang Seng stock index fell 2.3% after Chinese regulators banned the lucrative business of streaming unauthorized video games.

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