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Bonds retreat on risk of US policy shift 

May 23, 2016

Mehreen Khan and Robin Wigglesworth, Financial Times

Yields were continuing to rise across capital markets on Thursday as investors continued to reappraise their outlook for US monetary policy after the Federal Reserve’s unexpectedly hawkish minutes for April.

The prospect of higher US rates arriving sooner than expected prompted investors to cut their exposure to Europe’s safest government debt, sending yields on the bonds higher. In Germany, 10-year Bunds yields hit a three-week high, up by as many as 4 basis points to 0.21 per cent.

In the UK, 10-year Gilt yields popped up 4 basis points, the biggest one-day rise since mid-April taking the yield to 1.47 per cent, their highest level in two weeks.

The two-year US Treasury yield, which two weeks ago dipped below 0.70 per cent, rose a fraction of a basis point on the day to 0.90 per cent, just off its March 16 high. The paper is seen as one of the most sensitive to perceived policy shifts at the US central bank.

On Thursday, the 10-year US Treasury yield jumped by more than 10 basis points — the biggest one-day move since December 3 — to 1.87 per cent. It pulled back slightly on Thursday, down 1 basis point. The yield on 10-year US paper is up 18 bps since the start of the week. Read more

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