Bitesize: Tantrums, massacres and bond market reversals

Julia Giese and Matt Roberts-Sklar.

Government bond yields rose sharply in the UK in October 2016, following increased concerns about ‘hard Brexit’, and in the US since the presidential election in early November 2016. This chart puts these increases into historical perspective: moves in 10-year UK gilts and 10-year US Treasuries were of a similar magnitude to the 2013 US ‘taper tantrum’, the 2015 German ‘bund tantrum’, as well as in the so-called ‘bond massacre’ during the US 1994 tightening cycle.

Cumulative change in 10-year government bond yields

Source: Bloomberg, Bank and author calculations.

What do we take from this? A few things. First, the increase in yields seen in the US and the UK over past months was not trivial. Second, such bond market reversals are not unpreceded (a point made over a much longer time period by Paul Schmelzing in a previous post). And third, the pace of increase in each of these cases is broadly similar: around 80bps over 50 days. There are also caveats here. We’ve picked the clearest and biggest examples of large and persistent yield increases – possibly giving rise to selection bias. But the similar pattern perhaps indicates something more fundamental about momentum and trading dynamics in bond markets. And while the recent moves were not trivial, yields are still low relative to historic averages.

Julia Giese and Matt Roberts-Sklar work in the Bank’s Macro Financial Analysis Division.

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