Bond markets suffer another sharp sell-off

LONDON, Apr 21 (Reuters): Bond markets suffered another sharp sell-off on Thursday as investor bet on aggressive global interest rate hikes, while the euro climbed after French President Emmanuel Macron bolstered his weekend re-election hopes in a heated TV debate.
MSCI's world stocks index mustered only a modest move amid the prospect of higher global borrowing costs, but Paris stocks skipped nearly 2 per cent higher after Wednesday evening's clash between Macron and far-right rival Marine Le Pen.
Although Le Pen came across as more polished and composed than in a TV duel for the presidency in 2017, Macron needled her over her ties to Russia's leadership, her plans for the economy and her policy for the European Union.
One poll showed 59 per cent of viewers thought Macron had been the most convincing in the nearly three-hour-long tussle, suggesting his pre-debate 56 per cent-44 per cent lead in the race had at least been maintained ahead of Sunday's runoff vote.
"Yes, Emmanuel Macron won but his adversary has avoided a repeat of last time's disaster," Gerard Araud, a former French ambassador said on Twitter . "This debate doesn't disqualify her like the one in 2017, but it doesn't help her close the gap either."
Investors were otherwise back to focusing on the war in Ukraine and how fast interest rates will have to rise around the world as the conflict with Russia adds to what were already intense global inflationary pressures.
With European Central Bank and Federal Reserve chiefs Christine Lagarde and Jerome Powell also speaking on an International Monetary Fund panel later, Germany's 10-year Bund yields were heading back towards a seven-year peak, US Treasuries neared 2.9 per cent again, while Italy's yields hit their highest since March 2020's initial COVID panic.
Markets are expecting at least another half-percentage-point rate hike from the US Fed next month while one ECB policymaker said on Wednesday it might start hiking euro zone rates as early as July.
Citi's Global Markets Strategist Matt King said the pressure for markets was also coming from quantitative tightening, or QT - the process of years of frantic central bank money-printing going into reverse.
That process is just about to start and over the next year he estimates it will see around half a trillion dollars being sucked out of the global financial system by the Fed alone.
"Don't look at the real yields, look at the liquidity flow," King said, adding a rough calculation was that $1 trillion of QT would knock global stocks down by around 10 per cent.
"These flows are just too big for markets to anticipate ahead of time," he said.
US stock futures were pointing higher as electric carmaker Tesla’s shares surged nearly 8 per cent in pre-bell jockeying after strong results and as United Airlines predicted a surprise profit, which boosted the stocks of other carriers too.
Asia markets, in contrast, saw Chinese and Hong Kong stocks hit month lows overnight and China's yuan also fell to its lowest in six months as Shanghai authorities said tough COVID-19 restrictions would remain in place.
Chinese blue chips shed 1.8 per cent while Hong Kong stocks fell 2 per cent, both falling to their lowest level since mid-March. The spot yuan touched 6.4478 per dollar, its softest level since October.