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Bonds Slump Deepens on Shifting Policy Outlook; Commodities Rise 

October 27, 2016

Kelly Gilblom, Bloomberg

Government bonds tumbled, led by Britain’s gilts, as a brightening outlook for the global economy strengthened the case for central banks to step back from ultra-loose monetary policy. Stocks slipped amid a mixed batch of earnings reports.

U.K. yields jumped to the highest since the nation voted to quit the European Union following a report that showed third-quarter growth exceeded economist estimates, and Treasury 10-year note yields rose to a level last seen in early June. Norway’s krone surged after the central bank kept its benchmark interest rate unchanged for a fourth meeting. Commodities rose, buoyed by industrial metals, and crude oil advanced toward $50 a barrel.

As the economic picture improves, traders are gaining confidence that central bankers will shift away from exceptional policies aimed at boosting growth. After Thursday’s better-than-forecast GDP data, investors pared bets that the Bank of England will cut interest rates again to cushion the blow from the Brexit referendum. Bank of Japan Governor Haruhiko Kuroda meanwhile said the central bank may not need to buy 80 trillion yen ($765 billion) of bonds every year to achieve its target of a 10-year yield of around zero. Treasury 10-year yields have risen the most this month since February 2015 as investors prepare for the Fed to raise interest rates. Read more

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