Treasury yields climb as BOJ jitters rattle globe

Treasury yields rose on speculation that bets on rate cuts by major central banks have gone too far, with hawkish signals from the Bank of Japan rattling global markets as traders awaited Friday’s U.S. jobs report.

Two-year yields, which are more sensitive to imminent policy moves, climbed four basis points and topped 4.6%. S&P 500 contracts fluctuated.

A sharp strengthening of the yen and the biggest move in Japanese bond yields in a year served as a stark reminder to international investors that a major anchor for global borrowing costs may soon be dislodged.

“Both valuation and positioning would argue for exhaustion in the recent bond rally,” said Mohit Kumar at Jefferies International.

“Given our view of only a mild recession and inflation still remaining sticky, we would argue that the market has run a bit ahead of itself.”

In the run-up to the U.S. payrolls report, data showed continuing applications for U.S. jobless benefits fell by the most since July – suggesting some relief for unemployed workers in finding a new job.

Easing rate expectations played a big part in November’s stocks rally, yet a reading of cross-asset volatility shows risks aren’t as muted as they may appear.

The gap between the MOVE Index, which tracks interest-rate volatility, and the VIX gauge of stock price swings has once again widened, suggesting rate markets remain choppy and could spark stress for equities at any time.

U.S. stocks are already reflecting an optimistic outlook on economic growth, leaving them “vulnerable” to any macro shocks, according to Goldman Sachs strategists including Ryan Hammond and David Kostin.

“We believe much of the optimistic scenario is already reflected in U.S. equity prices today,” they wrote.

Meantime, interest-rate strategists at TD Securities recommended taking profits on long positions in 10-year Treasuries ahead of Friday’s November employment report, which puts yields “at risk of backing up sharply.”