Yields rising around the world. Locally, curve steepened. Little upside risk to a UK Remain vote

By Jason Wong

The asset allocation into risk assets has seen global bond markets sell off. 

UK 10-year gilts rose by 6 bps to 1.37%, well up from the sub-1.10 level reached a week ago.  German 10-year bunds rose by 3 bps to 0.09%, their highest level in three weeks.

US 10-year Treasury yields also trade at a three-week high, up 5 bps for the day so far at 1.73%.  No one has really been data watching this week, but lower jobless claims figures pointed to a solid labour market, while the Markit US manufacturing PMI also came in stronger than expected.

A “Remain” vote would remove one hurdle to further Fed tightening, but the market remains unconvinced of the Fed being kicked into action.  OIS market pricing suggests less than a 50/50 chance of a full rate hike has been priced in by year-end.

Local trading was quiet yesterday, as to be expected ahead of the UK vote.  The yield curve was marked a touch steeper, with the 2-year rate unchanged at 2.325% and the 10-year rate up 1.5 ps to 2.875%.

The DMO’s tender of $150 mln Apr-2033 bonds showed a fairly modest bid-cover ratio of 1.9.  The 17-year bond closed the day at 2.92%, up 4.5 bps, and a fraction under the weighted average accepted yield at the tender.

As with the currency market, there are asymmetric risks on the referendum outcome – a little upside to yields on “Remain” but lots of downside to yields on “Leave”.