(Bloomberg) -- New Zealand bonds slumped the most in two months as currency weakness and improving business sentiment saw expectations of another large Reserve Bank of New Zealand interest rate cut next month trimmed. 

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The yield on policy sensitive two-year notes jumped 11 basis points, their biggest climb since November 6, while the New Zealand dollar hit a two-year low on Monday. Traders have now reduced expectations of a 50 basis point cut to a 76% chance from a near certainty last week as data released Tuesday signaled businesses are more optimistic about the economy.

It’s the latest in a series of yield spikes in global bond markets, as traders reprice the interest-rate path of the world’s central banks in the face of sticky inflation and a robust US economy. In Japan, the 40-year yield touched a record high for the tenor, which made its debut in 2007.

“I’d characterise what we’re seeing today as capitulation,” said David Croy, a rates strategist at ANZ Group Holdings Ltd. in Wellington. “When all is said and done and the RBNZ delivers a 50 basis point cut next month, I think we’ll look back on today’s short-end and bond moves as a classic squeeze.”

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