TREASURIES-Ten-year yield hits 12-year high above 4% as bond markets tremble

BY Reuters | TREASURY | 09/28/22 12:51 AM EDT

SYDNEY, Sept 28 (Reuters) - Benchmark 10-year U.S. Treasury yields topped 4% on Wednesday as the ongoing collapse of British gilts shook confidence in bond markets globally, leading investors to demand fatter risk premiums.

The 10-year yield rose as far as 4 basis points to 4.004% in Asia trade, its highest in 12 years. It is up about 50 basis points in a week.

Five-year yields hit a 15-year high of 4.251%. Two-year Treasury yields were steady at 4.287%.

Yields rise when bond prices fall and global bonds prices, already on course for a terrible year, have extended losses as fear about inflation collides with market stress.

Persistent inflation has the U.S. Federal Reserve sounding ever more hawkish about interest rates - a view reinforced by relatively strong U.S. housing and confidence data overnight.

On top of that, traders suspect Japan could sell Treasuries to fund its intervention in currency markets after it acted to stabilise a sinking yen last week. Several other Asian countries have also been intervening to support their currencies, likely funded, too, by the sale of U.S. Treasuries.

Some funds might also need to cover losses suffered in the gilt market, where yields on two-year to 30-year tenors are up more than 100 basis points over the past three days.

"With one of the largest bond markets in the world (gilts) potentially experiencing a foreign buyers' strike, recent events may lead the market to ask: which country is next?" said George Saravelos, head of global FX strategy at Deutsche Bank Research.

"No wonder the risk premium on bonds globally is on the rise." (Reporting by Tom Westbrook; Editing by Ana Nicolaci da Costa)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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