Global Govt Bonds Steady After Selloff

Upcoming Federal Reserve meeting and the implications of the U.S. allowing Nvidia’s second-best chips to be exported to China were top on traders’ minds on Tuesday, as global bond selloff took a break, and stocks drifted.

Reuters reported that it is not just the Fed up this week; the Reserve Bank of Australia held rates steady as expected on Tuesday, but more notably, it ruled out further policy easing and warned the next move could be up if inflation pressures prove to be stubborn.

That pushed the Australian dollar to trade just shy of a near three-month high.

Nvidia shares rose around 2% in premarket trading, but Chinese tech names slid both onshore and in Hong Kong. Hong Kong’s Hang Seng Tech index lost nearly 2%.

Currencies, too, were fairly steady. The euro last bought $1.1649, little changed as higher European yields were matched by higher U.S. ones, while sterling was 0.22% higher at $1.3347.

The yen was flat at 156.1 per dollar after weakening immediately in the wake of a powerful earthquake that rocked Japan.

The Bank of Canada and Swiss National Bank are both expected to hold rates steady when they meet on Wednesday and Thursday, respectively, while comments by influential European Central Bank board member Isabel Schnabel created major waves, despite the ECB not setting policy until next week.

She said on Monday the next move in euro interest rates is more likely to be up – even if it is not on the immediate horizon – and warned leaving rates unchanged for too long could see a passive easing of monetary policy, according to Reuters.

Those remarks caused yields on shorter and longer dated German government bonds to post their biggest daily rise in months on Monday, and also pushed U.S. Treasury yields higher as well.

Things were calmer on Tuesday, however, with the 10-year German benchmark yield down 2 bps at 2.84%, around a nine-month high, while the 10-year Treasury yield was down a similar amount at 4.15%. ,

Stocks were also fairly calm. European and U.S. share futures were both a fraction higher on the day, though Asian stocks slid.

Worries about Japan’s fiscal health have been driving Japanese government bond yields higher, with global spillovers, making for an interesting setup for the Fed’s meeting, which concludes Wednesday.

A 25 basis point rate cut is all but priced in, but there is plenty more for investors to be watching.

“Between the possible dissents, Fed chair Powell’s tone, and the summary of economic projections, I think there’s a lot of ways markets could be surprised,” said Erica  Camilleri, senior global macro analyst at Manulife Investment Management, told Reuters.

These will also show whether the next Fed chair will take over a body nervous about further rate cuts, or happy to go along with President Trump’s wishes for looser policy.

White House Economic Adviser and top contender for the Fed Chair role, Kevin Hassett, said that the Fed should continue to lower interest rates.

And that will raise questions about how the Fed will operate in the medium term.

“What happens when we look at 2027 and 2028? Is this a Federal Reserve that will hike rates if we see a re-acceleration in growth? Or is this a Federal Reserve that has an easing bias, and so even if we see a re-acceleration in growth and inflation data, they stay pat?” said Camilleri.

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Investors were also trying to think through the implications of U.S. President Donald Trump saying Washington will allow Nvidia’s H200 processors, its second-best artificial intelligence chips, to be exported to China and collect a 25% fee on such sales.

In commodities, oil prices steadied after diving 2% in the previous session as market participants kept a close eye on peace talks to end Russia’s war in Ukraine.

Brent crude futures were 0.2% lower at $62.3 a barrel. U.S. West Texas Intermediate crude was at $58.69, down 0.3%.