TOKYO/SYDNEY, March 19 (Reuters) - Bond prices gyrated on Thursday with desperate investors dumping their holdings of government bonds in markets gripped by pandemic fears that has forced central banks to step up support for debt.
With economies around the world disrupted by widespread travel restrictions and economic activity near a standstill, foreshadowing a deep recession on par with the 2008 global financial crisis, bonds have not been spared.
The recent massive sell-off in equities and currency markets has prompted investors to abandon government bonds, normally considered a safe asset, to make up for losses elsewhere and to stock-up on cash.
Brokerages, with their trading books damaged, are restricting trading. As orders in markets have fallen to a trickle, market fluctuations have widened to unprecedented levels for many traders.
The Australian 10-year bond yield jumped more than 50 basis points to 1.647%, reaching its highest level since last May, even after the Reserve Bank of Australia cut interest rates for the second time this month and launched quantitative easinging in an emergency move.
“There is not much trading happening. There are not a lot of transactions, not a lot of deals and market makers are pricing very, very defensively. In some cases, market makers are pricing only by offers,” said Su-Lin Ong, managing director, RBC Capital Markets in Sydney
“It’s quite a dislocated market. We are one of the market makers. The reason we are pricing defensively is because you don’t want to be caught with a lot of inventory on the book.”
Even in U.S. bond market, the most liquid in the world, the yield on 10-year U.S. Treasuries jumped more than 0.25 percentage point each in the last two sessions, to as high as 1.2660%. It last stood at 1.245%, almost 1 percentage point above its record low of 0.318% touched just last week, despite the U.S. Federal Reserve’s one percentage point rate cut on Sunday.
The yield hardly budged after the U.S. Fed rolled out yet another emergency credit program, announcing it would make loans to banks that offer as collateral assets purchased from money market mutual funds.
European bond yields have soared in the past week, including Germany Bunds, which are usually considered as safe haven assets at times of economic stress because of Germany’s sound fiscal conditions.
The European Central Bank late on Wednesday launched new bond purchases worth 750 billion euros at an emergency meeting to mitigate the impact of the market rout on the euro zone’s economy.
On Thursday, the Bank of Japan offered to buy 1 trillion yen ($9.18 billion) of Japanese government bonds in an unscheduled operation, to stem the rise in domestic bond yields.
Following the announcement, the 10-year JGB futures price erased earlier losses to trade at 151.84, up 0.09 point on the day and off their earlier low of 151.20, though trade remained erratic.
“Given recent volatilities, most traders have to limit their trading so they can manage market risks with more caution. In addition, many people are now working remotely, away from their usual desk, so they can’t trade as speedily as they usually do,” said Keiko Onogi, senior strategist at Daiwa Securities.
The BOJ’s buying came after it decided to buy JGBs aggressively if needed at its policy meeting this week. (Reporting by Swati Pandey in Syndey & Hideyuki Sano in Tokyo; Editing by Jacqueline Wong)