On Wednesday, the bond market saw a significant selloff, with yields on 2- through 7-year U.S. Treasury bonds rising by as much as 10 basis points each. The 10-year yield also experienced an increase, reaching 3.99%. This surge in yields was largely driven by two factors. Firstly, data from China revealed an expansion of the country’s manufacturing activity. Secondly, the German inflation rate unexpectedly accelerated.
The odds of a half-of-a-percentage-point rate increase in March were boosted to 32%, while traders saw a 42% chance that the fed funds rate will end up between 5.5% and 5.75% by September. This latest selloff in the bond market was a sign of the increasing uncertainty in the global economy, as investors reacted to the news from China and Germany.
The Chinese manufacturing data was released on Wednesday morning and revealed a significant expansion of the sector. The Purchasing Managers’ Index (PMI) rose to 51.3 in February, up from 50.5 in January. This was the highest reading since April 2018 and was an encouraging sign for the Chinese economy. The PMI is a key indicator of the health of the manufacturing sector and a reading above 50 indicates growth. The expansion of the sector was driven by an increase in new orders and output, suggesting that the Chinese economy is continuing to recover from the coronavirus pandemic.
At the same time, German inflation unexpectedly accelerated in February. The inflation rate rose to 1.7% year-on-year, up from 1.3% in January. This was the highest rate since April 2019 and was driven by higher energy prices. The unexpected acceleration in inflation raised concerns that the European Central Bank (ECB) could be forced to raise interest rates sooner than expected.
The news from China and Germany sent shockwaves through the bond market, as investors reacted to the increasing uncertainty in the global economy. The selloff in bonds pushed yields higher, with 2- through 7-year Treasurys rising by as much as 10 basis points each, while the 10-year yield reached 3.99%.
The rise in yields also increased the odds of a rate increase in March. Traders boosted the likelihood of a half-of-a-percentage-point rate increase to 32%, while they saw a 42% chance that the fed funds rate will end up between 5.5% and 5.75% by September.
The bond market selloff on Wednesday was a sign of the increasing uncertainty in the global economy, as investors reacted to the news from China and Germany. The rise in yields suggests that investors are becoming increasingly concerned about the outlook for the global economy and are pricing in the possibility of higher interest rates. This could have a significant impact on the markets, as higher interest rates could lead to a tightening of monetary policy and a slowdown in economic activity.
Overall, Wednesday’s selloff in bonds was driven by data showing an expansion of China’s manufacturing activity and an unexpected acceleration in German inflation. The moves in the bond market pushed yields higher, with 2- through 7-year Treasurys increasing by as much as 10 basis points each, while the 10-year yield reached 3.99%. The rise in yields also boosted the odds of a rate increase in March, with traders seeing a 32% likelihood of a half-of-a-percentage-point rate increase and a 42% chance that the fed funds rate will end up between 5.5% and 5.75% by September. The selloff in bonds was a sign of the increasing uncertainty in the global economy, as investors reacted to the news from China and Germany and priced in the possibility of higher interest rates.
