Bond yields hit multi-month highs on heavy supply and BOJ speculation

Bond yields hit multi-month highs on heavy supply and BOJ speculation

"We could see more moves like this", said a currency trader at a USA bank.

The BOJ's move also helped to raise the 10-year United States bond yield above its December high to 2.573%, the highest since March last year, from 2.482%, late on Monday.

In Europe, indicators have pointed towards a strong economic performance in 2018, which in turn puts pressure on the European Central Bank to withdraw extraordinary stimulus - due to run til September at least - sooner rather than later.

Analysts also said the rise in yields across the board is fuelling speculation among investors as to whether this is the start of a sustained bear market for bonds.

Janus Henderson's Bill Gross has tweeted a "bond bear market has been confirmed" as the 10-year US Treasury yield climbed to the highest level in around 10 months.

The BoJ's actions are not seen as a sign of an impending shift from ultra-accommodative policy, but yet another sign of central banks stepping back from global bond markets, as the US Treasury is expected to sell the most debt in eight years in a bid to reduce its $4.4trn balance sheet.

A sharp rise in oil prices in recent times could also push inflation higher worldwide: US crude prices on Wednesday touched their highest since December 2014.

U.S. West Texas Intermediate (WTI) crude traded at $63.53 a barrel, up almost 1 per cent on the day, after having risen as high as $63.59 earlier. Brent crude rose 0.5% to $69.15 per barrel, staying near its highest level since mid 2015.

At 0850 GMT, the STOXX 600 index was down 0.2 per cent while the FTSE edged up 0.1 per cent as a lower sterling helped British dollar earners.

Its rise came amid a glut of bond supply from the U.S., the UK, Japan and Germany, and a surprise cut in purchases of long-dated Japanese government bonds by the Bank of Japan (BoJ). While the move was in line with the BOJ's subtle reduction in its bond buying over the past year, or "stealth tapering", the reaction highlighted how sensitive markets are to a pullback in Japan's massive stimulus.

"Japanese yields have been rising and this has been reinforcing the move on the yen", Thu Lan Nguyen, a Frankfurt-based FX strategist at Commerzbank.

The yield on Germany's 10-year government bond, the benchmark for the bloc, was 2 bps higher at one stage at 0.48 percent.

Outside the STOXX, smaller United Kingdom financial spreadbetters fell, like CMC Markets and Plus500, down 5.5 per cent and 3.4 per cent respectively.

The MSCI world equity index, which tracks shares in 47 countries, was up 0.1 per cent.

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