Global Bonds Fall on Waning Demand for Havens and Sales Deluge

(Bloomberg) -- US and German bonds are starting the week on the back foot amid waning demand for haven assets and as investors prepare to absorb a slate of new debt sales.

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Treasury yields rose one to three basis points across the curve, trading close to five-month highs reached last week. German rates were up by a similar amount, underperforming their major peers in the region.

The rush for safe assets that dominated markets last week is unwinding on the absence of a major escalation in Middle East tensions. Focus is now shifting to this week’s bond auctions in the US and Europe as a test of investor appetite after yields reached the highest levels of 2024.

The US Treasury will sell a total of $183 billion in two-, five- and seven-year notes this week, while Germany and Italy plan to raise as much as €14 billion ($14.9 billion) in offerings that include a new two-year tenor from the former. The European Union is expected to sell three- and 30-year bonds via banks according to Danske Bank A/S, raising €7 billion.

“The market has come into this week with a no-news-is-good-news mindset. There is no sign of escalation in the geopolitical situation in the Middle East so there’s a bit more risk-taking going on,” said Michael Brown, a strategist at Pepperstone Group Ltd. “The Treasury market isn’t going to get a steer on where to go until the next Federal Reserve meeting on May 1.”

Yields surged this month on signs the US economy remains resilient, which led traders to push out bets on Fed interest-rate cuts to late 2024. The latest leg of the Treasuries selloff briefly pushed the two-year rate above 5%, a level perceived as key for bond managers seeking to put to money to work in short maturities.

“We are probably about six months away from a cut, so there will be a few people looking to buy the front end and lock in that yield” in the US, said Pepperstone’s Brown. The two-year Treasury yield traded at 4.99% on Monday.

Investors are also awaiting the release of the Fed’s preferred inflation gauge — the personal consumption expenditures price index — which probably accelerated in March to 2.6%. The data is due on Thursday.

In Europe, markets will be focusing on PMIs on Tuesday, German Ifo gauges on Wednesday and a series of speeches from European Central Bank members throughout the week, including President Christine Lagarde later on Monday.

--With assistance from James Hirai and Michael Mackenzie.

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