German bond yields spiked yesterday, generating demand for European currencies, while volatility in global bond markets weighed on stock indexes around the world.
US 10-year Treasury yields hit their highest in six months before reversing course.
US stocks were lower in early trading, with the bond market volatility adding to existing investor anxiety over the perilous state of Greece’s finances.
German bond yields have surged in recent weeks, boosted according to some analysts by optimism that inflation may have bottomed in the euro region.
The move has been exacerbated by investors unwilling to enter the market until the selloff shows signs of stabilising.
The US dollar slumped against the euro and Swiss franc.
Benchmark 10-year Treasuries were last up 2/32 in price to yield 2.27 per cent, after earlier hitting 2.37 per cent.
The Treasury is due to sell $24 billion in three-year notes yesterday, $24 billion in 10-year notes on Wednesday and $16 billion in 30-year bonds tomorrow. Corporate and other supply is also coming to market.
“The selloff in bunds and the need to accommodate this week’s refunding auction and some corporate supply, has been the primary theme,” said Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut.
German 10-year yields added 14 basis points to 0.73 per cent.
Less than a month ago, German 10-year yields hit a record low of 0.05 per cent, driven down by a €1 trillion European Central Bank bond-purchase scheme intended to kick-start inflation.
MSCI’s all-country world index of stock performance in 46 countries was down 0.6 per cent.
The Dow Jones industrial average fell 34.94 points, or 0.19 per cent, to 18,070.23, the S&P 500 lost 6.12 points, or 0.29 per cent, to 2,099.21 and the Nasdaq Composite dropped 16.34 points, or 0.33 per cent, to 4,977.23.
Elevated US yields mean higher corporate borrowing costs, which could hit shares across the world.
In the forex market, the euro was last up 0.86 per cent against the dollar at $1.12510 and was set for its first session of gains in four against the greenback.
Investors have also been concerned that debt-burdened Greece could run out of cash.
Eurozone finance ministers, who met on Monday, acknowledged progress in talks between Greece and its creditors but said more work was needed to close a cash-for-reforms deal. Athens stocks , however, rose 0.2 per cent.
Oil prices, up more than 50 per cent from their January lows, rose further as dollar weakness trumped concerns about oversupply. Brent crude was up 70 cents at $65.61 a barrel. US crude was up 47 cents at $59.72.