Bond Yields Surge, Signaling Growth Hopes After Strong U.S. Data Investors propelled bond yields to multiyear highs as robust economic data and an easing of trade tensions sparked fresh optimism.
(…) The yield on the benchmark 10-year U.S. Treasury note climbed to 3.159% from 3.056% Tuesday, settling at its highest level since July 2011 and notching its biggest one-day rise in more than a year. (…) The yield on the two-year Treasury note, which is often sensitive to changes in expectations for Federal Reserve interest-rate policy, rose to a 2018 high of 2.860% from 2.815% Tuesday. (…)
Sovereign bond sell-off spreads worldwide
Anxiety Builds in Junk-Bond Market Money gets pulled from a high-yield-credit ETF at the fastest pace since 2016 as investors seek to hedge by buying protective options.
(…) Meanwhile, investors pulled over $2 billion from the iShares iBoxx $ High Yield Corporate Bond Exchange-Traded Fund, known as HYG, in September, the most in a single month since May 2016—shortly after plunging oil prices led to widespread selling in junk bonds, FactSet data show. (…)
There has been little hedging activity in other risky assets, like U.S. stocks, which are in the midst of the longest bull market ever. In the equity market, investors have actually been using bullish options to chase further gains, analysts say.
An options measure called skew has risen over the past month for HYG, Trade Alert data show. That means bearish contracts have become relatively more expensive—a sign investors are willing to splurge on protective options even if they’ve become pricier.
Investors are also purchasing options that would only pay out if HYG’s price fell far below its current level—a sign they are hedging against a potential catastrophic event that could hurt their portfolios, according to Mr. Cecchini.
Among the biggest positions in HYG are options that pay out if the ETF falls about 5%, Trade Alert data show. This week, the number of positions in contracts that pay out if the ETF slumps 13% also increased, the data show. (…)
ISM vs MARKIT
Markit’s September PMI Composite adds to signs that the pace of economic growth cooled to the lowest since January but continued to run close to a 3% annualised rate over the third quarter as a whole.
Firms are hiring in increasing numbers to expand capacity, with the employment index from the manufacturing and services surveys rising to a level indicative of a further non-farm payroll rise in excess of 200,000.
However, despite the increase in employment, many companies are clearly still struggling to meet demand, with strong inflows of new business causing backlogs of work to accumulate across the economy at one of the fastest rates seen since 2014.
The combination of reduced spare capacity and robust domestic demand is driving prices charged for goods and services higher at a rate not seen since the global financial crisis.