Major sovereign bonds rallied on Monday as markets showed further signs of stabilisation after their worst monthly performance in years.
Expectations of economic recovery and rising inflation, particularly related to U.S. fiscal stimulus, have pushed up global benchmark bond yields in February to their biggest monthly rises in years. But in the meantime, the expected run-down of U.S. Treasury balances at the U.S. Federal Reserve have held down shorter-dated rates.
Many markets had already shown signs of calming on Friday and sentiment held up on Monday, with major sovereign bond yields starting the week lower.
In Australia, whose central bank will announce its monetary policy decision on Tuesday, 10-year bond yields tumbled as much as 22 basis points.
In the euro area, Italian 10-year yields fell as much as 8 bps and benchmark German 10-year yields 5 bps.
Though they underperformed other regions, the U.S. benchmark 10-year Treasury yield was last down 2 basis points at 1116 GMT to 1.44%, while five-year bonds outperformed, with their yield down 7 bps.
Analysts at Rabobank said the moves were explained by a rally in eurodollar futures, which investors use to bet on future interest rate moves, showing an unwinding of some of the moves last week that priced in a U.S. Federal Reserve rate hike in early 2023.
Sebastien Galy, senior macro strategist at Nordea Asset Management, noted that the benchmark Treasury yield has settled below the one-year highs over 1.60% touched last week, even as the Fed and others like the European Central Bank refused to intervene and cap rising yields.
"This is most likely the end of this temper tantrum and presents opportunities for investors faced with dislocated markets," he said.
However, sentiment remained wary, with analysts noting that verbal intervention by central banks would not be enough to drive yields much lower.
That caution appeared evident in U.S. 30-year yields, which bore the brunt of February's sell-off. Underperforming the rest of the Treasury yield curve, they were up 3 bps to 2.21% on Monday, though still far below last week's highs.
Focus on Monday will be on U.S. February manufacturing data, due at 1430 GMT from the Institute for Supply Management. A Reuters poll forecast it would be roughly in line with the previous reading.
Mizuho analysts, noting recent U.S. data releases, said another strong reading was likely. Government bond yields, which are inversely related to their price, usually rise when economic data is better than expected as that cuts demand for safe-haven assets.
(Reporting by Yoruk Bahceli) ((Yoruk.Bahceli@thomsonreuters.com; +44 20 7542 7571; Reuters Messaging: email@example.com))