Global bond rout: UK 10-year pays 5.48%, more than Treasuries, and France now pays more than Italy
The 10-year Treasury hit 5.327%, a high since April 2002, but it is not the outlier. A 1.75-point gap over German bunds is pulling money into the dollar, which cuts the cost of a euro invoice.
Government bond yields rose across the developed world on Thursday, and the 10-year Treasury yield climbed more than 3 basis points to 5.327%, a level last seen in April 2002, CNBC reported. The 30-year bond rose almost 4 basis points to 5.678%. The Financial Times described the move as a global bond sell-off. The 10-year closed Wednesday at 5.29% on Treasury's own yield curve data.
We covered the U.S. side of this yesterday: a softer inflation report cut the odds of a Fed hike and long yields rose anyway (here). Today's story is that the U.S. is one of many.
The thing everyone got wrong: Treasuries are not the worst of it
Headlines lead with the 24-year high in U.S. yields. Line the major markets up side by side, using the levels CNBC reported on Thursday, and the picture changes:
| 10-year government bond | Yield | Note |
|---|---|---|
| United Kingdom | 5.483% | up 5 basis points |
| United States | 5.327% | highest since April 2002 |
| France | 4.925% | up 8 basis points |
| Italy | 4.706% | up 10 basis points |
| Germany | about 3.58% | topped 3.6%, highest since 2008 |
| Japan | 3.126% | highest since the mid-1990s |
Two things stand out. Britain is paying about 0.16 percentage point more than the U.S. to borrow for ten years. And France, the euro area's second-largest economy, is paying about 0.22 point more than Italy. CNBC tied the global move to persistent deficits, inflation that is still above target, and central banks leaning toward higher rates, with bond prices increasingly tracking oil since the war with Iran disrupted Middle East exports. Brent crude was back above $100 on Thursday.
The number behind the number: 1.75 points over Germany
The U.S. 10-year yields about 1.75 percentage points more than the German bund. That gap is one reason the dollar keeps rising while U.S. bonds sell off: investors comparing safe assets still get paid more in dollars. The dollar index was up 0.44% at 101.56 at 10:56 a.m. ET on our markets page, and a Wall Street Journal headline put the dollar near an 18-month high on the prospect of higher U.S. rates. The euro was down 0.57% at $1.1265.
Who it actually hits
Importers paying in euros come out ahead on the day. A business settling a 100,000 euro invoice needs about $112,650 at today's rate, against roughly $113,300 at Wednesday's, about $650 less on one payment.
Borrowers do not. The 10-year is the benchmark for mortgages and many business loans. Freddie Mac's 30-year fixed rate averaged 7.03% in its Sept. 24 survey, and the next weekly reading comes out today. A business pricing a commercial mortgage or refinancing long-term debt right now is doing it off a benchmark at a 24-year high.
Exporters selling into Europe face the mirror image of the importer: a stronger dollar makes their goods dearer for euro buyers.
What traders are watching
The September jobs report is due Friday, with a consensus forecast of 90,000 jobs against 162,000 the month before, according to the economic calendar on our markets page. The Fed's next rate decision is Oct. 28. Oil remains the swing factor CNBC's sources pointed to: a resolution in the Middle East that lowered crude could take pressure off long yields.
Sources: CNBC; Financial Times; The Wall Street Journal; U.S. Treasury daily par yield curve rates; Freddie Mac Primary Mortgage Market Survey; Chronicle markets data. Yield gaps and the invoice example are Chronicle calculations. This is market information, not investment advice.
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