FirstFT: Record-breaking global bond rally crumbles

The record-breaking global bond market rally since the start of this year has fizzled out as mounting signs of persistent inflation force investors to reverse their views on the likely future path of interest rate rises.

Investors rushed into fixed income in the first few weeks of 2023 as they became increasingly expectant that the US Federal Reserve and other big central banks would soon end their aggressive campaign of monetary policy tightening.

A Bloomberg index tracking high-grade government and corporate bonds rose as much as 4 per cent last month, its best ever start to the year.

But that gain has now disappeared after a scorching US labour market report earlier this month kicked off a run of better than expected economic data on both sides of the Atlantic, ending expectations that the Fed and the European Central Bank were close to winning their battle with inflation.

The resulting rise in bond yields has also upset a rally in the stock market, with the S&P 500 losing 2.7 per cent in the past week.

“We’ve had a reality check,” said Michael Metcalfe, head of macro strategy at State Street, adding that the easing of monetary policy expected by markets a few weeks ago “looked a little fanciful”.

Five more stories in the news

1. US wary of Chinese drone shipments to support Russia in Ukraine Michael McCaul, the top Republican on the House foreign affairs committee, said the US is increasingly concerned that Beijing is considering sending 100 drones and other lethal weapons to Russia, ahead of an expected meeting between Russian president Vladimir Putin and his Chinese counterpart Xi Jinping next week.

2. China Renaissance’s missing founder Bao Fan ‘co-operating’ in government probe In a terse stock exchange filing late on Sunday in Hong Kong, the company said its board had “become aware that Mr Bao is currently co-operating in an investigation being carried out by certain authorities in the People’s Republic of China”, more than a week after the investment bank disclosed it had been unable to contact him.

3. Shanghai’s return to business tests China reopening After three years of Covid restrictions that hampered travel and trade, the financial hub is reopening without much evidence of what made it China’s most cosmopolitan city: foreign visitors. The revival will be a test of the country’s engagement with the outside world, as policymakers embark on a reopening years later than western counterparts.

4. Adani stock market losses hit $145bn one month after short seller attack The sell-off triggered by Hindenburg Research, which accused Adani of stock manipulation and accounting fraud, has erased more than 60 per cent from the value of Adani’s publicly traded companies and rocked an empire that spans ports to airports to energy.

5. Trafigura offered $15mn from alleged nickel fraudster using Mauritian bank The world’s largest private metals trader secured a $625mn freezing order against Indian business tycoon Prateek Gupta and his business empire after accusing him of “systematic fraud”. It is one of London’s biggest ever commodities lawsuits.

The day ahead

Crimea Today is the ninth anniversary of the pro-Russian uprising in Crimea that led to the annexation of the peninsula. The 47-member UN Human Rights Council will use the anniversary as the basis for discussions in Geneva on human rights crises around the globe.

• Related read: On February 22 1946, George Kennan, a US diplomat in Moscow, sent a 5,000-word telegram to secretary of state James Byrnes. Seventy-seven years on, it offers lessons on living with Vladimir Putin’s Russia.

Economic data February eurozone consumer confidence data for the EU will be released today.

Space mission Nasa’s SpaceX Crew-6 mission to the International Space Station is due to launch from the Kennedy Space Center in Florida this afternoon. You can follow events live on the agency’s website.

What else we’re reading

China’s economy and a new wave of Japanification New research by Citigroup suggests that China today looks “strikingly similar” to post property bubble era Japan. The risks investors should heed are those in the banking system, writes Leo Lewis.

How much is Manchester United really worth? The club’s owners, the wealthy Glazer family, have put it up for sale with a reported target price of $6bn-$7bn including debt that would shatter records for any sports club. But the FT’s calculations suggest it is worth around $1.6bn.

Anime and ‘The Last of Us’ are transforming Sony For long-term Sony watchers, the television series The Last of Us symbolises the culmination of a decade-long metamorphosis at the company. The transformation, which one analyst described as “remarkable”, has steadily converted Japan’s best-known consumer electronics brand into a less well-understood blend of specialist-hardware maker and international media giant.

Lockdowns are over. WFH isn’t. Why? Nearly three years after Italy introduced the first nationwide lockdown of the pandemic, much of the world remains in the grip of what economists Jose Maria Barrero, Nicholas Bloom and Steven Davis have called “Long Social Distancing”. The shift has several elements behind it, writes Tim Harford.

Metaverse creator Neal Stephenson on the future of virtual reality The writer who invented the metaverse concept sat down with FT’s global technology correspondent Tim Bradshaw to discuss why he decided to get involved in building it — and the trouble with AI. Read their conversation here.

Take a break from the news

Stumped on what to watch next? Here are six films to watch this week.