US Treasury investors got a rude awakening after the Thanksgiving holiday when prices unexpectedly slid and yields jumped to three-month highs.
There were a number of rumours about the cause of the move, but no agreed version, including a shift in asset allocation towards equities and year-end profit-taking. Many banks end their fiscal year on Tuesday.
The moves were more extreme in longer-dated bonds, leading strategists to suggest profit-taking in "curve flattening" trades, meaning investors were forced to buy back short-dated bonds and sell holdings of longer-dated notes. Short-dated paper is more sensitive to changes in interest rates and the trade had been popular ahead of next month's expected quarter-point rate rise from the Federal Reserve.
By late trade in New York, the yield on the two-year note was up 2.9 basis points at 3.070 per cent, while the yield on the10-year jumped 10bp to 4.334 per cent.
Eurozone prices had already been weak as the euro fell against the dollar. Traders were also pondering the possibility of another interest rate rise from the European Central Bank, which meets on Thursday.
The yield on the two-year Schatz was up 4.5 basis points to 2.360 per cent while the 10-year Bund was up 4.9bp to 3.809 per cent.
In the UK, falling gilt prices pushed the yield on the 10-year to a four month high of 4.598 per cent. But the two-year gilt yield was down 2.2bp to 4.330 per cent following Bank of England figures showing a slowdown in British credit in October and mortgage approvals running at their lowest for almost five years.
Japanese government bond prices fell following a rally in the stock market and caution ahead of the release of October industrial production figures due out on Tuesday. In addition, the Ministry of Finance is set to auction Y1,900bn in 10-year notes on Thursday.
The yield on the benchmark 10-year note was up 2bp at 1.45 per cent. /www.news.ft.com/