‘Unprecedented’ volatility in bond markets: Goldman

It is too early to tell just how long the selloff in government bonds will last following “unprecedented” market volatility, Goldman Sachs International’s Vice Chairman Michael Sherwood told CNBC on Monday.

European and U.S. bond yields soared last week to their highest levels this year – sending their prices tumbling — amid some positive signs on the economic front and a perception that inflation is picking up faster than anticipated a few months ago.

“We went from a period where rates were a one-way bet down when the (European Central Bank’s) QE (quantitative easing) program was announced; we had a situation where 30-40 percent of government bonds had negative yields. That is starting to reverse itself a little bit, but it’s too early to tell,” Sherwood told CNBC.

“(ECB President Mario) Draghi has said they are committed to the QE program — it’s very early days in a situation that is unprecedented,” he added. “I think we will look back on this period and say: ‘Wow, were rates really that low?’ But it may take a couple of years.”

The yield on the 10-year German Bund, the benchmark in Europe, soared more than 40 basis points last week, climbing to just shy of 1 percent. The yield, which moves in the opposite direction to the price, was at 0.885 percent on Monday and well above a record low of 0.05 percent set in April.

It’s not just European bonds that saw wild swings last week – the yield on the 10-year Treasuryclimbed to an eight-month high at about 2.40 percent after a stronger-than-expected U.S. non-farm payrolls report on Friday renewed talk of the Federal Reserve lifting interest rates sooner rather than later.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.