An employee passes share price information displayed on an electronic ticker board inside the London Stock Exchange Group’s offices in London, the UK. Picture: BLOOMBERG VIA GETTY IMAGES/LUKE MACGREGOREuropean markets rallied on Wednesday, led by banks, after news that the European Central Bank would hold an emergency meeting on the recent bond market sell-off ahead of what is expected to be the most aggressive rise in US interest rates since 1994.
“The best laid plans of the ECB and President Lagarde to normalise policy in an orderly fashion have just run into the reality of the bond market,” said Societe Generale strategist Kit Juckes. Treasury yields had hit decade highs overnight and the dollar a 20-year peak as futures implied it was near certain the Fed would hike by 75 basis points to a range of 1.50-1.75% later on Wednesday.
That could be some time away and the global investment bank is recommending investors reduce portfolio duration and increase exposure to real assets. Japan’s Nikkei lost 1.1%, though sentiment was helped by a survey showing an improvement in confidence among local manufacturers. Two-year yields stood at 3.37%, after touching the highest since 2007 at 3.456% overnight. Given many US borrowing rates are linked to yields, financial conditions have already tightened markedly there even before the Fed hikes.