The cost of government borrowing jumped after two surprise interest rate hikes this week provided a reality check on the fight against inflation.
Two-year interest-sensitive UK gilt bond yields rose nine basis points to 4.55% after the Bank of Canada joined the Reserve Bank of Australia in surprising markets with more rate hikes .
Bond yields – the return the government must offer buyers of its debt – rose 28 basis points in the past week, while the UK 10-year bond yield rose 13 basis points in the past week.
Treasury values tumbled and yields rose across much of Asia overnight as investors reassessed inflation risks, with yields on shorter-dated U.S. Treasuries nearing their highest since March.
Their Australian equivalents have soared to levels last seen more than a decade ago.
It comes ahead of a key decision by the US Federal Reserve at its June 13-14 meeting, where traders expect the central bank of the world’s largest economy to halt its long-running program of interest rate hikes.
Colin Graham, head of multi-asset strategies at Robeco, said: “The Reserve Bank of Australia defied economists’ forecasts to raise the cash rate again this week, which could put more pressure on the European Central Bank, the US Federal Reserve , the Bank of Japan and the Bank of England.
“July expectations have already shifted from an expected decrease to an expected increase.”
Diana Yovanel, an economist at Capital Economics, said: “As inflation has proved more stubborn than we thought, we now think the central bank will keep policy higher for longer than we previously forecast.”