Bond investors brace for Fed pushback on rate cuts

NEW YORK, Dec 11 – Bond investors are expecting the Federal Reserve this week to temper the market’s conviction that US interest rates will be cut early next year, even as portfolios get positioned for lower yields later in 2024.

Many portfolio managers have reduced long-duration bets to be more neutral on their bond positions, at least in the short term. Going long duration against a benchmark reflects expectations US yields will fall because the Fed will cut rates.

Investors widely expect the Fed to hold interest rates steady on Wednesday but do not expect it to signal a shift from its tightening policy stance. According to a Reuters poll of economists, the Fed will keep rates unchanged until at least July, later than earlier thought.

In contrast, federal funds futures, the most straightforward measure of determining where traders believe the Fed’s benchmark overnight rate will be at any given time, lowered the odds of a rate cut in March on Friday, pricing in about a 46% chance, from 64% a week ago following a stronger-than-expected US payrolls report.

Futures traders still saw a 79% chance in May, according to the CME’s FedWatch, but that was also down from 90% a week earlier.

Fed Chair Jerome Powell had said, in a Dec. 1 speech, that while the target rate is “well into restrictive territory,” the Fed is prepared to tighten policy further if deemed appropriate.

“There’s a real disconnect between what the Fed says and what they would like to see in terms of tighter financial conditions and what the market is doing,” said John Velis, head of US macro strategy, at BNY Mellon in New York.

“What that means is that Dec. 13 is going to be a hawkish meeting. I don’t think the Fed will announce a pivot. You may see the dots push back against market pricing for early rate cuts,” referring to the Fed’s closely followed dot plot, which comes out four times a year and graphs policymakers’ rate projections.

Recent US economic numbers have shown a resilient economy despite aggressive rate hikes since March last year.

Friday’s US non-farm payrolls, for example, showed a still-robust labor market, creating 199,000 new jobs in November, beating consensus expectations and rising from the previous month. The unemployment rate also slipped to 3.7%.

US inflation is slowing but is still a ways away from the Fed’s 2% inflation target.

BIG BOND RALLY

With investors anticipating Fed rate cuts, investors bought Treasuries, pushing 10-year yields 78 basis points (bps) lower since November, and two-year yields down roughly 49 bps.

The rapid decline in yields has made “financial conditions looser than they otherwise would have been,” said James Camp, managing director of fixed income and strategic income, at Eagle Asset Management.

That was a reversal from late October when the 10-year yield hit 5%. Market participants reckoned at the time that the Fed may not be as aggressive in raising rates because the bond market was doing the job for them by pushing yields higher.

“We now have the mirror opposite of that,” Camp said. “It’s going to be interesting to see if there’s a hawkish dialogue from the Fed because I think they need to do that if they really want the economy to continue to slow.”

FROM LONG TO NEUTRAL, FOR NOW

With asset managers betting on “higher-for-longer” rates at least until the summer, their portfolios have become more neutral or closer to their benchmark, from being long duration.

Duration, expressed in years, measures how much a bond’s price will move when the Federal Reserve changes interest rates.

“We were at the longest duration a couple of weeks ago,” said Andrew Szczurowski, head of agency mortgage-backed securities and portfolio manager at Morgan Stanley Investment Management.

Szczurowski said with the 80-90 basis point drop in yields, “we’re getting closer to neutral.”

The ultimate goal, however, is still to extend duration as the Fed will eventually cut rates. When the Fed embarks on an easing cycle, longer-duration securities tend to rally.

“We see the beginnings of recession actually hitting in the second quarter and we expect the Fed to cut at the back half of the year,” said Eagle’s Camp.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Alden Bentley and Lisa Shumaker)

Oil settles slightly higher, investors still wary

Dec 11 – Oil prices settled up slightly on Monday as OPEC+ production cuts failed to fully offset worries around crude oversupply and softer fuel demand growth next year.

Brent crude futures settled up 19 cents, or 0.3%, to USD 76.03 a barrel while US West Texas Intermediate crude futures settled up 9 cents, or 0.1%, at USD 71.32.

Both contracts jumped more than 2% on Friday but were down for a seventh straight week, their longest streak of weekly declines since 2018, on lingering oversupply concerns.

“There is little doubt that the oil complex remains in a state of vulnerability,” oil broker PVM’s John Evans said in a note on Monday.

Despite a pledge by the OPEC+ group, which comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, to cut 2.2 million barrels per day (bpd) of crude oil production in the first quarter, investors remain sceptical about compliance.

“Members participating in the output curtailments are not only seeing reduced revenue from smaller volumes but also from the price plunge that developed subsequent to the last OPEC+ decision,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

Output growth in non-OPEC countries is expected to lead to excess supply next year.

RBC Capital Markets expects stock draws of 700,000 bpd in the first half, but only 140,000 bpd for the full year.

“Prices will remain volatile and directionless until the market sees clear data points pertaining to the voluntary output cuts,” RBC analysts said in a note.

With cuts not implemented until next month, oil faces a volatile two months before clarity from any quantifiable compliance data, the analysts said.

The latest consumer price index data from China, the world’s biggest oil importer, showed rising deflationary pressures as weak domestic demand cast doubt over the country’s economic recovery.

Chinese officials on Friday pledged to spur domestic demand and consolidate and enhance the economic recovery in 2024.

This week, investors are watching for guidance on interest rate policies from meetings at five central banks, including the US Federal Reserve, as well as US inflation data to assess the potential impact on the global economy and oil demand.

Recent price weakness drew demand from the United States, which has sought up to 3 million barrels of crude for the Strategic Petroleum Reserve (SPR) in March 2024.

“We know the Biden Administration is in the market looking to refill the SPR, which will provide support,” IG analyst Tony Sycamore said in a note, adding that prices were also being supported by technical chart indicators.

Meanwhile, a draft of a potential climate deal at the COP28 summit on Monday suggested a range of options countries could take to reduce greenhouse gas emissions, but omitted the “phase out” of fossil fuels many nations have demanded.

UN Secretary General Antonio Guterres said a central benchmark of success for COP28 would be whether it yielded a deal to phase out coal, oil and gas use fast enough to avert disastrous climate change.

(Reporting by Laura Sanicola and Paul Carsten; Editing by David Evans, Tomasz Janowski, and Deepa Babington)

When higher US yields and dollar is a good thing

Dec 11 – Asian markets are set for a positive open on Monday, taking the baton from Wall Street on Friday after a surprise fall in the US unemployment rate bolstered the view that an economic ‘soft landing’ will be achieved and recession avoided.

Looked at through a ‘good news is good news’ prism, the rise in Treasury yields and the dollar on Friday should not be a drag on Asian and emerging markets, like they often are.

The two-year US yield posted its biggest rise since June after data showed that the unemployment rate fell to 3.7%. Any lingering hopes for a rate cut this week quickly vanished, and the first fully priced rate cut was pushed back to May next year from March.

If the S&P 500 and Nasdaq’s rise on Friday to their highest levels since early 2022 lifts most Asian markets on Monday, Chinese assets may struggle after figures this weekend showed that deflationary pressures intensified in November.

Consumer prices fell 0.5% both from a year earlier and compared with October, much deeper than the median forecasts in a Reuters poll of 0.1% declines for both. The year-on-year decline was the steepest since November 2020.

Factory-gate deflation deepened too – producer prices have been falling on a year-on-year basis or more than a year now – indicating rising deflationary pressures, weak domestic demand, and increasing doubt over the economic recovery.

Figures like these will only deepen calls for more stimulus from Beijing, and are a reminder as to why Chinese markets are underperforming so much – China’s blue chip CSI 300 index has lagged the MSCI World Index, S&P 500, and Nikkei 225 this year by 24%, 27%, and 30%, respectively.

A batch of major economic indicators from Beijing will be released on Friday – industrial production, retail sales, house prices, unemployment, and business investment for November.

The Asian economic and policy calendar is light on Monday – money supply and a quarterly business survey index from Japan, and industrial production figures from Malaysia are all investors have to get their teeth into.

For the rest of the week, interest rate decisions from Taiwan and the Philippines, inflation data from India, and that data dump from China on Friday are the main regional calendar events.

But market sentiment and direction will largely be driven by the key events in developed economies. They include policy meetings from the Bank of England and European Central Bank, US inflation, and the one everyone is waiting for – the Federal Reserve’s policy decision on Wednesday.

The Fed is widely expected to keep its fed funds target range steady at 5.25-5.50%, so all eyes will be on the accompanying statement, policymakers’ revised projections, and Chair Jerome Powell’s press conference.

Here are key developments that could provide more direction to markets on Monday:

– Malaysia industrial production (November)

– Japan money supply (November)

– US bills, 10-year note auctions

(By Jamie McGeever; Editing by Diane Craft)

Year-end rally in US stocks faces twin tests as Fed, inflation data loom

NEW YORK, Dec 8 – The Federal Reserve’s last monetary policy meeting of 2023 and a US inflation report in coming days should test a stock market rally that some view as stretched following weeks of gains.

Bets the Fed will begin cutting interest rates sooner than expected have fueled a surge in US equities, which received a tailwind from a rapid decline in Treasury yields. The S&P 500 up nearly 20% in 2023 after a monthly gain in November that was its biggest of the year.

Yet some investors believe the rise in stocks has left markets more vulnerable to reversals if consumer prices do not keep cooling or the Fed is less dovish than expected.

The S&P 500 rose 0.2% this week, marking its sixth-straight weekly increase, the longest such winning streak in about four years. The index stands at its highest closing level since March 2022.

“There is some optimism priced in on earnings and the economy and the Fed, so that has taken us to this level,” said Scott Wren, senior global market strategist at the Wells Fargo Investment Institute (WFII). With the S&P 500 near the top of its trading range, “we think there is a lot more potential for downside than upside.”

The WFII has a 2024 price target for the S&P 500 of about 4,700, or about 2% above current levels.

While the Fed is expected to keep rates steady on Wednesday for a third straight meeting, investors will watch for signs from policymakers that confirm the market’s view for rate cuts as early as March 2024. The Fed will also release its summary of economic projections, which will show officials’ rate expectations for next year.

Friday’s stronger-than-expected jobs and consumer sentiment data, combined with a rise in yields, bolstered the case for those betting the Fed “could lean more hawkish” next week, said Quincy Krosby, chief global strategist for LPL Financial.

The federal funds futures market on Friday was pricing in a 46% chance of a cut at the Fed’s March meeting, and a nearly 80% chance of a cut in May, according to the CME FedWatch tool.

Many investors believe stocks can continue rising in the weeks and months ahead, with the S&P 500 just 4% from making a fresh all-time high.

Past rate cycles have shown that stocks tend to climb during the period when monetary policy is “on hold.” The S&P 500 has gained an average of 5.1% in periods that the Fed has paused its rate-hiking cycle and before the central bank’s first cut, according to an analysis of nine such periods by ClearBridge Investments.

The S&P 500’s rally has brought it back to around where it stood when the central bank last raised rates in July, “suggesting there could be upside” from current levels, ClearBridge strategists said in a Dec 4 blog post.

At the same time, a period of strong gains often sees stocks continuing to push ahead for months, according to Ryan Detrick, chief market strategist at The Carson Group. The S&P 500’s 8.9% gain in November put it in the 20 best-performing months since 1950, Detrick wrote in a recent report.

The index was higher a year later 80% of the time after those exceptional months, rising 13.3% on average, according to Detrick.

Still, the market’s recent gains could warrant caution.

Angelo Kourkafas, senior investment strategist at Edward Jones, said a hotter-than-expected number in consumer price data due out on Tuesday could drive a short-term pullback.

Stocks jumped last month after the October consumer price index was unchanged for the first time in over a year, boosting expectations the Fed was done tightening.

Investors will weigh the latest CPI data against recent numbers showing economic softening, including moderation in another key inflation gauge, the personal consumption expenditures price index.

“There are enough data points that we have a trend established that we are moving in the right direction,” Kourkafas said.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and David Gregorio)

Dollar up after strong US jobs data, takes back some losses from yen

WASHINGTON, Dec 8 – The dollar rose on Friday after new data showed US job growth accelerated in November and the unemployment rate dropped, pointing to underlying strength in the labor market.

The US dollar index was last up 0.3% at 104.0, on track for a modest weekly gain after a bruising November, in which it shed 3%. The yen was 0.52% lower against the dollar at 144.35, following its biggest rally in almost a year the day before.

US nonfarm payrolls added 199,000 jobs last month, the Labor Department’s Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast 180,000 jobs created.

The employment report, which showed the unemployment rate fell to 3.7%, suggested that financial market expectations that the US Federal Reserve could pivot to cutting interest rates as soon as the first quarter of 2024 were premature.

“So far, there’s nothing in the data that forces (the Fed) off their ‘let’s see what happens’ stance. The market was clearly leaning in the other direction,” said Steven Englander, head of global G10 FX research at Standard Chartered Bank in New York.

Traders of short-term US interest-rate futures on Friday pared bets the Fed will start cutting interest rates in March after the report, and now see a May start to rate cuts more likely.

Markets had earlier priced in about a 60% chance of a March start to Fed rate cuts but, after the readout, pared that to just under 50%.

“In the short term, the US rates market has just gotten, I think, way too dovish on the Fed,” said Stephen Miran, co-founder of Amberwave Partners. “The massive ease in financial conditions since the start of November basically means that the Fed doesn’t need to cut to throw fuel on that fire.”

YEN ENTHUSIASM

Although the yen was lower after the readout of the US November jobs data, it surged by as much as 1.2% earlier on, adding to Thursday’s 2% rally after Bank of Japan (BOJ) Governor Kazuo Ueda gave the clearest steer yet that the central bank is considering when to wrap up its negative rates policy. It was headed for its fourth weekly gain against the dollar on Friday.

The Japanese currency has vaulted to multi-month highs against a range of others in the last two days, although some of that strength dissipated over Friday’s European trading session.

Thursday’s rally was the largest one-day jump for the yen since January. But without more impetus from the BOJ, it may not have much more scope for outsized gains.

“I think it’s pretty clear the BOJ is where other central banks were in late 2021. The case for having the lowest real interest rates in the world … is not very strong at this point. But the question is, how long do they want to prepare the market?” said Englander.

The yen has fared best against higher-yielding currencies, such as the pound. Sterling fell to a two-month low against the yen on Friday, but last recovered to rise 0.66% to 181.88.

Elsewhere, the euro fell 0.31% to USD 1.07585, while the pound dropped 0.38% to USD 1.255, and was set for a weekly decline.

The Australian dollar fell 0.32% to USD 0.65795, while the Chinese yuan weakened 0.27% to 7.1877 against the dollar in offshore trading.

Data on Thursday showed China’s exports grew for the first time in six months in November, while imports shrank.

In cryptocurrencies, bitcoin last rose 1.58% to 43,981, hovering near its highest since April 2022.

(Reporting by Hannah Lang in Washington; Additional reporting by Amanda Cooper in London and Rae Wee in Singapore; Editing by Mark Potter, Susan Fenton, and Jonathan Oatis)

Gold slides over 1% as strong US jobs data clouds rate cut bets

Dec 8 – Gold retreated back under USD 2,000 an ounce on Friday as the dollar and Treasury yields strengthened after traders trimmed bets for US interest rate cuts to materialize by March following stronger-than-expected jobs data.

Spot gold fell 1.4% to USD 2,000.49 per ounce by 2:15 p.m. ET (1915 GMT) after hitting a session low of USD 1,994.49 earlier. Prices were down 3.4% so far for their worst week in ten.

US gold futures settled 1.6% lower at USD 2,014.50.

US job growth accelerated in November while the unemployment rate fell to 3.7%, signaling underlying labor market strength that made traders bet that it could take the Federal Reserve until May to deliver the first reduction in a series of interest-rate cuts next year.

“Gold has slumped as the US employment report showed strength across the board,” said Tai Wong, a New York-based independent metals trader.

“This close at lows, USD 150 below Sunday’s all-time high, has shifted the narrative on the Fed meeting. Now, gold bulls are hoping for a friendly Fed result that will prevent a deeper correction, if not a rout.”

The dollar index firmed 0.7% for the week, making bullion more expensive for overseas buyers, while 10-year Treasury yields rebounded from three-month lows.

Traders awaited up-to-date interest rate projections for next year from the Fed policy meeting on Dec. 12-13.

“With a great deal of easing already priced into the market, both silver and gold will continue to see periods where convictions could be challenged,” Ole Hansen, Saxo Bank’s head of commodity strategy, said in a weekly note.

Physical gold dealers in India increased discounts to seven-month highs this week to lure customers as record local prices hurt demand.

Spot silver lost 3.3% to USD 23.00 per ounce, eyeing its worst week since October 2022.

Platinum gained 1.3% to USD 919.01, while palladium fell 2.44% to USD 945.94. Both were set for weekly declines.

(Reporting by Anushree Mukherjee, Ashitha Shivaprasad, and Deep Vakil in Bengaluru; Editing by Shilpi Majumdar and Maju Samuel)

Global bond funds draw biggest weekly inflow in eight months

Dec 8 – Global bond funds saw significant inflows in the seven days to Dec. 6, amid growing expectations of interest rate cuts in the US and Europe and signs of inflation waning.

Investors purchased a net USD 11.57 billion of global bond funds during the period, the most substantial weekly net buying since April 5.

Following US Federal Reserve Chair Jerome Powell’s cautious remarks on interest rate increases, US bond prices rallied, driving the 10-year Treasury yield which to a three-month low of 4.104% during the week.

European bond funds notably drew USD 11.03 billion, the highest since April 2021, while Asian funds gained USD 1.33 billion. US funds experienced USD 2.56 billion in net outflows.

Global high yield bond funds attracted USD 2.38 billion, but government bond funds saw USD 1.22 billion in outflows.

Meanwhile, demand for equity funds cooled as they received just USD 1.62 billion, the lowest weekly inflow in five weeks.

Financial sector equity funds still attracted USD 897 million, their biggest weekly inflow since July 19. Communication services also saw inflows of USD 518 million, while the healthcare sector experienced outflows of USD 414 million.

Meanwhile, global money market funds saw substantial demand as they accumulated some USD 83.71 billion, a seventh straight week of inflows.

Elsewhere, data for commodity funds revealed that energy funds had USD 121 million of net buying, the second weekly inflow in a row. Precious metal funds also witnessed USD 101 million worth of net buying, after net selling of USD 469 million previously.

Data covering 29,159 emerging markets funds showed investors stayed net sellers of equity funds for a 17th consecutive week, shedding a net USD 1.96 billion. EM bond funds, however, received USD 1.57 billion of inflows, after USD 761 million of outflows a week ago.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Alexander Smith)

Oil gains over 2% but records seventh weekly decline

BENGALURU, Dec 8 – Oil prices rose more than 2% on Friday after US data supported expectations of demand growth, but both benchmarks fell for a seventh straight week, their longest streak of weekly declines in half a decade, on lingering oversupply concerns.

Brent crude futures settled at USD 75.84 a barrel, up USD 1.79, or 2.4%, while US West Texas Intermediate crude futures settled at USD 71.23, up USD 1.89, or 2.7%.

For the week, both benchmarks lost 3.8%, after hitting their lowest since late June on Thursday, a sign that many traders believe the market is oversupplied.

Also fuelling the market’s downturn, Chinese customs data showed its crude oil imports in November fell 9% from a year earlier as high inventory levels, weak economic indicators and slowing orders from independent refiners weakened demand.

However, Friday’s gains, the first in six sessions, could be a sign that the market has found a floor for now after falling for six straight sessions, said Phil Flynn, analyst at Price Futures Group.

“Look to step in with caution but the lows should be in,” he said.

US Labor Department data released showed stronger-than-expected job growth, signs of underlying labor market strength that should support fuel demand in the biggest oil market.

That followed government data on Wednesday showing US gasoline demand last week lagged the 10-year seasonal average by 2.5% and gasoline stocks rose by 5.4 million barrels, more than quintuple forecasts, leading to gasoline prices to plummet.

Like crude, US RBOB gasoline futures on Friday rebounded about 3% from two-year lows on Thursday.

“Wednesday’s Energy Information Administration (EIA) report which spurred concern of soft demand on a significant increase in gasoline inventories, may not be as concerning in the wake of the strong jobs report,” said Rob Haworth, senior investment strategy director at US Bank Asset Management.

Offering more support to the demand enthusiasm, data showed US consumer sentiment perked up much more than expected in December.

Meanwhile, Saudi Arabia and Russia, the world’s two biggest oil exporters, on Thursday called for all OPEC+ members to join an agreement on output cuts just days after a fractious meeting of the producers’ club.

The Organization of the Petroleum Exporting Countries and its allies last week agreed to a combined 2.2 million barrels per day (bpd) in output cuts for the first quarter of next year. The market has been concerned, however, that some members may not adhere to their commitments.

(Reporting by Shariq Khan, Paul Carsten, Stephanie Kelly, and Muyu Xu; Editing by Marguerita Choy and Cynthia Osterman)

Stocks sag as China worries, Hong Kong downgrade looms

Dec 7 – Shares in most emerging markets dropped on Thursday led by Chinese stocks, after trade data failed to instil confidence about recovery in the world’s second-largest economy, while a Moody’s downgrade on Hong Kong further added to the gloom.

Heavy-weight China blue-chips closed 0.2% lower after data showed exports grew for the first time in six months in November, while imports unexpectedly fell following the previous month’s increase.

“Today’s trade data add to signs of stabilization of China’s economy. However, both external and domestic demand has nevertheless remained soft, in line with the mixed signals given by the latest PMI readings,” said Tommy Wu, senior economist at Commerzbank Research.

Hong Kong listed equities tumbled 0.7% to a 13-month low after Moody’s put Hong Kong, Macau and swathes of China’s state-owned firms and banks on downgrade warnings, after an identical move on Wednesday on the mainland government’s ratings.

MSCI’s index tracking developing markets equities lost 0.5%, while a basket of currencies dipped 0.1% against the dollar as of 0913 GMT.

The indices have been range-bound following November’s rally, as investors await U.S. November non-farm payrolls data that could determine the outlook for the world’s largest economy and U.S. monetary policy.

India’s benchmark NSE Nifty 50 stock index dipped 0.1% after rising for seven consecutive sessions and hitting record highs.

In central and eastern Europe, Poland’s zloty fell 0.2% against the euro, a day after the local central bank left its main interest rate on hold at 5.75%.

Czech’s crown rose 0.2% as data showed industrial output rose by a higher-than-expected 1.9% in October, after a revised 4.9% fall in September.

Turkey’s BIST 100 stock index shed 0.3%, with the banking index tanking 3.1%. The Turkish Banking Association (TBB) and Central Bank Governor Hafize Gaye Erkan evaluated the transition to lira and moves to reduce the amount of forex-protected KKM deposits converted from foreign currency.

Russia’s rouble strengthened to 92.54 to the dollar. The local parliament voted to set March 17, 2024 as the date for presidential elections, with residents of the parts of Ukraine annexed by Russia to participate for the first time.

In Latin America, Presidents of the four Mercosur nations meet for their annual summit in Rio de Janeiro with black clouds hovering over the fate of a trade deal with the European Union, as well as the future of the regional common market itself.

(Reporting by Johann M Cherian in Bengaluru; Editing by Rashmi Aich)

Euro zone bond yields trade near seven-month lows before US jobs data

LONDON, Dec 7 – Euro zone bond yields were little changed on Thursday after hitting multi-month lows the previous day, as investors waited for impetus from U.S. jobs data.

Germany’s 10-year bond yield was last down less than 1 basis point (bp) at 2.205%, just above its lowest level in seven months.

Bond yields, which move inversely to prices, have tumbled this week after influential European Central Bank official Isabel Schnabel told Reuters that further interest rate hikes were “rather unlikely” given that inflation slowed to 2.4% in November.

Italy’s 10-year bond yield was last up unchanged at 3.957% after falling to 3.95% on Wednesday, the lowest since July.

The US employment report on Friday will give investors a sense of whether their expectations for steep Federal Reserve interest rate cuts next year are appropriate. Before that, US weekly jobless claims data is due at 1330 GMT on Thursday.

Pricing in money markets shows that investors currently expect around 120 bps of rate cuts in the U.S. and 140 bps in the euro zone by December next year.

Sonja Laud, chief investment officer at Legal & General Investment Management, said at an event on Wednesday that she expects euro zone inflation to remain above the ECB’s 2% target by the end of 2024.

“If we’re right on that, clearly we might not see the full extent of the rate cuts,” she said.

Yet she said it has historically paid off to buy bonds when central banks have finished hiking interest rates.

“This journey might not be straightforward, but if you accept (that and) you got in here at the top, then you might well be in for a very profitable journey.”

Germany’s 2-year bond yield, which is sensitive to ECB rate expectations, was last down 1 bp at 2.596% after falling to its lowest since May at 2.57% on Wednesday.

Global bond yields rose in the Asian session overnight, with Deutsche Bank credit strategist Jim Reid pointing to comments from Bank of Japan officials that pushed up Japanese market rates.

BoJ Deputy Governor Ryozo Himino said on Wednesday that an exit from ultra-loose monetary policy, if done properly, could reap rewards for the country’s economy.

Japan’s 10-year bond yield rose around 11 bps overnight and last stood at 0.756%.

Japanese investors are large holders of foreign bonds and some analysts have said a sharp rise in domestic yields could suck money back to Japan and out of global assets.

Mixed economic data on Thursday showed that German industrial output unexpectedly fell for a fifth month in a row in October, while Chinese exports grew for the first time in six months.

(Reporting by Harry Robertson; Editing by Angus MacSwan)

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