A drop in US government bond prices continued to weigh on global debt markets on Thursday as investors anticipate a rise in inflation stemming from the recovery from the coronavirus pandemic.

The yield on the US 10-year benchmark bond rose 0.05 percentage points to as much as 1.4490 per cent — a fresh one-year high — despite Federal Reserve chairman Jay Powell on Wednesday downplaying the threat of a jump in consumer prices, pointing to slack in the US labour market.

Australian and New Zealand government bonds bore the brunt of the selling. The yield on Australia’s 10-year security raced 0.13 percentage points higher to 1.86 per cent, its most elevated level since May 2019.

New Zealand’s benchmark bond yield soared more than 0.18 percentage points to just over 1.85 per cent, following a statement by finance minister Grant Robertson that the Reserve Bank of New Zealand should take overheating house prices into account when setting interest rates.

“Investors viewed this change as restricting the RBNZ’s ability to continue with ultra-easy monetary policy,” commented Chris Scicluna, an economist at Daiwa.

Inflation expectations in the US, derived from the prices of inflation-protected government securities, are running at just under 2.2 per cent as President Joe Biden attempts to get his $1.9tn coronavirus stimulus bill through Congress.

Germany’s 10-year Bund yield added 0.05 percentage points to minus 0.25 per cent and the yield on Britain’s 10-year gilt jumped 0.07 percentage points to 0.80 per cent.

“The main theme in markets is reflation,” said Gregory Perdon, co-chief investment officer of private bank Arbuthnot Latham. “This causes bonds to sell off because if you believe inflation is heading towards 2 per cent, there is no reason to own a bond that yields less than this.”

Bond yields have risen rapidly since January, when the Democratic party won control of the Senate, bolstering Biden’s chances of spending heavily on economic stimulus.

The Fed last March began buying at least $120bn of financial assets each month to support markets through the pandemic, pushing the 10-year yield close to 0.5 per cent in August and about 0.9 per cent at the start of 2021.

“The rise has been surprisingly rapid,” said Juliette Cohen, strategist at CPR Asset Management, adding that a sustained run-up in Treasury yields, which inform what investors are willing to pay for companies’ shares, “has made us cautious on US equities, where valuations are tight”. Since March last year, the tech-focused Nasdaq Composite index has risen about 90 per cent.

Inflation bets have supported some stock markets heavily weighted towards old-economy businesses at the expense of faster-growing sectors such as tech. The region-wide Stoxx Europe 600 index is up more than 4 per cent so far in February while the continent’s banks sector gained 1.5 per cent on Thursday. The Nasdaq Composite is down almost 2 per cent this week, lagging behind the stalwarts that make up the Dow Jones Industrial Average, which is up 1.5 per cent since Monday.

London’s FTSE 100, which added 0.4 per cent on Thursday and is dominated by banks, energy companies and industrial groups, is up more than 4 per cent this month despite a rise in sterling that threatens the profits of the benchmark’s multinationals that make the bulk of their revenues overseas.

In currencies, the Australian dollar, which is often viewed as a proxy for global commodities prices, added 0.3 per cent to just under $0.80 — its strongest since February 2018.

Brent crude, the international oil benchmark, hit a 13-month high of $67.70 a barrel before paring back some of those gains towards midday.

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