Why a rout in government bonds is worrying
LONDON - The world's biggest bond markets are in the throes of another rout as a new era of higher for longer interest rates takes hold.
Traders now see the Fed cutting rates to only 4.7% from 5.25%-5.50% currently, up from the 4.3% they anticipated in late August. Many investors were also betting bond yields would drop, so are extra sensitive to moves in the opposite direction, analysts say.U.S. data remains resilient with Monday's upbeat manufacturing survey pushing Treasury yields up again.
Bond yields determine governments' funding costs, so the longer they stay high, the more they feed into the interest costs countries pay. U.S. financial conditions are at their most restrictive in nearly a year, a closely-watched Goldman Sachs index shows.First, rising yields set the stage for a third straight year of losses on global government bonds, hurting investors long betting on a turnaround.Focus could turn back to banks, big holders of government bonds sitting on unrealised losses, a risk put on the radar by Silicon Valley Bank's March collapse.
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