(Nov 1 Bloomberg) A worldwide slump in government bonds resumed after an unexpected pickup in Chinese manufacturing fueled optimism about the global economy. Emerging-market stocks rallied with copper.
Prospects for a pickup in inflation pushed the yield on 10-year Treasury notes to the highest since May relative to those on two-year securities. Gasoline in New York jumped the most in almost eight years after an explosion and fire in Alabama shut the largest fuel pipeline in the U.S. The Stoxx Europe 600 Index of equities pared gains after banks slid. Australia's currency strengthened after the central bank refrained from cutting interest rates.
Fresh from a decline in October that was the biggest in two years, bonds slid again Tuesday as investors came to terms with increasing evidence that economies are improving enough for major central banks to start stepping back from ultra-loose policies. While the Federal Reserve is forecast to leave interest rates unchanged at a review this week, futures traders see a 71 percent chance of a hike before the year is out. Concern that Chinese growth was faltering last year prompted the Fed to delay monetary tightening.
"European government bonds are somewhat weaker as the market realizes that central banks won't add stimulus," said Christoph Kutt, head of rates strategy and sovereign credit at DZ Bank AG in Frankfurt.
Treasury 10-year note yields increased three basis points to 1.86 percent as of 10:06 a.m. London time. The yield differences with two-year notes climbed above 1 percentage point for the first time since May. The longer-dated bonds are driven more by the outlook for consumer-price growth while those with shorter maturities tend to respond more to changes in interest rates.
The yield on Australia's 10-year bonds increased four basis points to 2.39 percent. The probability of an interest rate cut by mid-2017 sank to 30 percent in the swaps market after the RBA meeting, from 42 percent on Monday.
Click on the link below to see the full story from Bloomberg: (by James Regan and Lukanyo Mnyanda)