Global markets battled investors’ jitters in the last day of February, following the most turbulent day for U.S. Treasuries since the coronavirus pandemic. A sudden bond market sell-off triggered by record weakness in the 7-yr Treasury auction last week sparked off a chain of events through all asset classes as traders scrambled to rebalance their portfolio for the month-end. The sharp jump in rates, combined with inflation worries, and stronger than expected economic data resulted in heavy sell off in major stock benchmarks and U.S. dollar snapped higher across major currency pairs.
The surge in rates is hurting risky assets, as stocks appear to be less competitive than bonds and investors rethink about equity valuations with higher borrowing costs. Global central banks have attempted to soothe investors nerves – ECB officials signaled that they were closely monitoring the evolution of bond yields and will be able to buy bonds flexibly; Fed Chair Jerome Powell shared that there will be no interest rate hikes nor tapering anytime soon; Australia’s Central Bank have resumed bonds purchase to enforce its yield target; and Reserve Bank of New Zealand promised a prolonged period of stimulus even as economic outlook brightens. Despite the efforts, analysts are increasingly concerned with the sustainability of global recovery should real rates continue to climb further.
In other notable currency movements, GBPUSD shot above 1.40 last month, a level not seen since April 2018. The cable has been propped up as traders remain bullish on UK’s economy recovery and reopening prospects, given positive manufacturing and service sector data and falling coronavirus infection rate. Both AUD and NZD continue to post strong gains against the dollar, on the back of bullish momentum from their robust economic recovery.
