Fear that U.S. and Japanese policymakers will scale back economic stimulus sent quivers through debt markets on Monday, while U.S. stocks gained ahead of major company earnings reports.
Bond yields climbed as investors forecast the Federal Reserve will continue raising interest rates due to stronger growth and inflation pressures despite U.S. President Donald Trump's criticism and after a Reuters report that the Bank of Japan (BoJ) is discussing modifying its huge stimulus program sent Japan's 10-year bond yield JP10YT=RR soaring near six-month highs.
The report rekindled anxiety about whether monetary policymakers will continue lending support to the global economy and piled pressure on investors navigating rising protectionism.
U.S. 10-year Treasury yields US10YT=RR hit the highest in a month, trading at 2.9615 percent.
"It's all that concern investors have about the move from global quantitative easing to global quantitative tightening," said Rory McPherson, Psigma Investment Management Ltd's head of investment strategy.
"That fear gets stoked when you have reports such as this."
Sage Advisory Services Ltd President Bob Smith said there is no "800-pound gorilla" willing to absorb rising bond inventories. Several U.S. bond auctions are scheduled this week.
"You're sitting right in the dead of summer," he said.
"I don't think the superheroes are on the (trading) desks right now. They're probably on the beach."
(Graphic: Japanese bond yields jump to 6-month high - reut.rs/2LgVPjJ)
The dollar index .DXY rose 0.19 percent off two-week lows it hit after Trump criticized Fed rate hikes and accused the European Union and China of manipulating their currencies.
Beijing said it does not intend to devalue the yuan to help exports.
"We see the latest news on trade policy as pointing to continued high risk of escalation between the U.S. and China, and a renewed focus of the Trump Administration on currency matters," Goldman Sachs analysts said.
Trump's warnings last week about excessive rate hikes also widened the gap between short- and long-term Treasury yields. That yield curve "steepening" accelerated on Monday, with yields on 30-year Treasuries 0.46 percentage point higher than their 2-year counterparts, the biggest gap in nearly a month. US2US30=TWEB
Fed policy drives short-end Treasury yields, while inflation and growth expectations move longer-term yields. The gap has been shrinking this year, which some investors view as a cue for recession.
U.S. STOCKS GAIN
Trump's threats to slap duties on all $500 billion of U.S. imports from China triggered selloffs across global stock markets.
Yet the S&P 500 managed gains ahead of potentially blockbuster earnings.
Financials welcome steep yield curves because they borrow at short-term rates and lend over longer periods, profiting on the difference.
MSCI's gauge of stocks globally .MIWD00000PUS shed 0.01 percent, with equities broadly lower across Europe, Japan and emerging markets.
The Dow Jones Industrial Average .DJI fell 13.83 points, or 0.06 percent, to 25,044.29, the S&P 500 .SPX gained 5.15 points, or 0.18 percent, to 2,806.98 and the Nasdaq Composite .IXIC added 21.68 points, or 0.28 percent, to 7,841.87.
Investors are bracing for a packed earnings week, including Facebook Inc's (FB.O) results, and a meeting on tariffs between European Commission President Jean-Claude Juncker and Trump.
Oil prices fell after earlier gains. Saudi Arabia and other producers could raise production before a November deadline for countries to comply with U.S. sanctions on Iranian crude sales, traders said.
U.S. crude CLcv1 settled down 0.54 percent at $67.89 per barrel and Brent LCOcv1 ticked down 0.01 percent to $73.06.
Both copper and gold neared one-year lows. Copper CMCU3 - among the most sensitive to trade tensions - lost 0.32 percent, trading at $6,128.00 a tonne.
Spot gold XAU= dropped 0.6 percent to $1,224.31 an ounce. A strong greenback makes the metal, which is priced in dollars, more expensive to international buyers.