For the first time since May 2019: ten-year federal bond with a positive yield again

IIn the wake of the sell-off in American government bonds, federal bonds are also currently being sold. For the first time since May 2019, their yield rose above 0 percent on Wednesday morning to a peak of 0.0053 percent. The yield on the ten-year US government bond rose to 1.8735 percent on the prospect of interest rate hikes by the Federal Reserve soon and is heading for its strongest rise in more than five years.

Market observers assume that this will soon reach 2 percent. A strong interest rate hike of 0.5 percentage points in March is currently considered possible. It would be the first increase of this magnitude in 22 years.

The 2 percent is safe, but after a rate hike in March the sell-off will slow down but continue, predicted Damien McColough, head of bond research at Westpac Banking Corporation to the Bloomberg news agency.

Further rate hikes expected

Bonds from other countries are also under pressure. The yield on the 10-year British government bond rose from 1.1809 to 1.22 percent on Tuesday. In December, consumer prices on the island rose by 5.4 percent compared to the same month last year, the national statistics office ONS said on Wednesday. That’s the highest increase in 30 years and was higher than analysts had expected.

The British central bank has already reacted to the high inflation and last year raised interest rates for the first time since the outbreak of the corona pandemic. Further increases are expected in the current year.

Meanwhile, bond traders fear that mortgage-backed bondholders will sell more government bonds to hedge against interest rate risk.

Experts are also worried about the futures market, where short sales indicated a massive downside risk.

According to Bloomberg surveys, a return of 2.13 percent is expected by the end of the year. However, some expect even higher returns: Lombard Odier at 2.25 percent and Shane Oliver of AMP Capital even at 2.75 percent. The bond market is realizing that secular stagnation is over and inflation will be higher for a longer period of time.