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US bonds wreak havoc on global markets as prospect of more rate hikes drives another wild day

  • US government borrowing costs have clocked up their longest run of increases since 1984 

US government borrowing costs have clocked up their longest run of increases since 1984 as the prospect of more rate hikes drove another wild day on global markets. 

Yields on the ten-year bonds – which move inversely to their prices – have climbed for 12 weeks in a row as US central bank, the Federal Reserve, battles to bring down rampant inflation. 

The milestone came despite a reversal late in yesterday’s session as bond yields slipped back on a hint that the Fed may soon be ready to take their foot off the gas. 

Elsewhere, traders were also scrambling to react to a sudden spike in the Japanese yen as well as the latest political chaos in the UK, and looking ahead to the European Central Bank’s (ECB) interest rate decision next week. But it was movements in US bonds and the prospects for US rates that took centre stage. 

Ten-year bonds are globally important as they are used as a risk-free benchmark against which trillions of dollars of other investments are priced. 

Yesterday, the yield on the bonds – known as Treasuries – hit 4.34 per cent, the highest level since 2007 and a staggering increase from just 2.64 per cent in late July. 

But the picture changed later when the Wall Street Journal reported that, while the Fed still looks set to hike rates by threequarters of a percentage point in November – which would be the fourth such jumbo increase in a row – that could slow soon. Officials are likely to debate whether and how to signal plans to move to a smaller increase in December, the report said. 

The dollar, which has also been supercharged by the Fed’s determination to raise rates, took a step back too. 

Wall Street stocks powered ahead on the prospect of looser interest rate policy and in London, the FTSE 100 ended a topsy-turvy session 0.4 per cent higher. 

It was another bumpy day for the pound, which enjoyed a boost earlier in the week as Liz Truss quit as Prime Minister. Increasing speculation that Boris Johnson could return as PM left sterling volatile but it strengthened later as the greenback softened. 

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UK ten-year bond yields also ricocheted before turning higher late in the session. 

Meanwhile, the yen recovered from a 32-year low. The Japanese currency has fared worst among global currencies in the face of the rampant dollar and the upturn in its fortunes prompted the Bank of Japan to intervene again – having previously spent billions to prop it up last month.

In Europe, the prospect of another three-quarter point rate hike from the ECB next week sent German ten-year bond yields to their highest level since May 2011. But they edged back after the report in the Wall Street Journal. 

Paul Nolte, a fund manager at financial platform Kingsview Asset Management in Chicago, said: ‘There’s some recognition by Fed governors that we need to think about talking about stepping back from 75 basis point rate increases. The Fed needs to take not a pivot but maybe a pause sometime in the first quarter.’

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