(Bloomberg) — The chaotic downfall of a billion-dollar hedge fund isn’t leaving so much as a scratch on U.S. markets.
Just days after the implosion of Bill Hwang’s Archegos Capital Management, there are few signs of lasting damage — at least for now. Everything is pointing to optimism about President Joe Biden’s plan to accelerate the vaccine campaign and rebuild U.S. infrastructure, with benchmark Treasury yields topping 1.77% and small-cap futures rebounding.
Banks are leading gains in European stocks while U.S. equities are trading near record highs with the S&P 500 escaping Monday’s market turmoil relatively unscathed, while a dollar gauge advanced to a three-week peak.
The benchmark 10-year bond breached 1.75%, with a wave of selling in bond futures seen as London trading got underway. Yields on five-year Treasuries rose above 0.9%, followed by a block sale in the notes, before touching their highest level in 13 months. While blocktrades are common they’ve made headlines this week by adding to the pressure surrounding Archegos.
The selloff rippled through European markets with benchmark U.K. bonds climbing as much as six basis points to 0.85% and their German and Italian peers experiencing similar moves. Risk appetite is surging as investors weigh a stronger than expected global recovery, and a pledge that 90% of U.S. adults will be eligible to get a Covid-19 shot by April 19. The U.S. reached a record three-day stretch of 10 million shots over the weekend, according to the Bloomberg Vaccine Tracker.
Asset managers say the boost to sentiment means the Treasury rout has further yet to run. Charles Diebel, who manages about 4.5 billion euros ($5.3 billion) at Mediolanum in Dublin, sees benchmark Treasury yields pushing toward 2% in the second quarter. “It will be volatile but the selling isn’t done yet,” he said.
Currency traders are piling into the dollar, with the greenback outperforming all its Group-of-10 peers. Investors ditched havens with the yen leading losses in the cohort, and there’s further bad news on the horizon for the Japanese currency — sentiment on the dollar against the yen is at its least bearish in more than four years.
“The weaker yen is more a dollar story,” said Andreas Koenig, head of global foreign exchange at Amundi Asset Management. “A wider yield gap is to be expected and the yen weakness could go further.”
The Treasury selloff will likely last the week, said John Roe, the London-based head of multi-asset funds at Legal & General Investment Management, who is tactically short on U.S. debt. There’s a realistic chance Friday’s payroll data will show one million jobs added in March, he said.
“We think more investors are positioning for that,” he said. “If you want to see how quickly an economy can rebound, and surprise experts, just look at Australia. That same narrative could play out in the U.S.”
Market participants had been prepared for a period of grace in bond markets.
Quarter-end re-balancing flows into bonds from stocks had been expected to boost demand in the short term. The start of Japan’s fiscal new year from April 1 also had many anticipating fresh demand from one of the biggest buyers of Treasuries in the past. Bond market volatility has tended to cool off in April in the past.
Other markets are getting rocked too. Australia’s 10-year bond yield rose as much as 10 basis points, with losses amplified by concerns ahead of Wednesday’s A$2 billion ($1.5 billion) debt sale, the first of material size in a month.
(Rewrites throughout, adds options chart, updates pricing.)
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