Global stocks under pressure as U.S. Treasury yields soar
A bond selloff that sent benchmark U.S. Treasury yields to the highest since 2011 spread into Asia and Europe on Thursday, spurring more gains for the U.S. dollar and triggering widespread declines in equities.
As America’s 10-year yield continued to climb — exceeding 3.2 per cent — rates on European government bonds followed. The increase in what’s effectively the world’s benchmark risk-free rate also challenges appetite for other assets, and futures on the S&P 500 Index duly dropped alongside the Stoxx Europe 600 and MSCI Asia Pacific gauges. Emerging-market shares were hit particularly hard. The higher Treasury yields supported the greenback, and the Bloomberg Dollar Spot Index rose a sixth day. South Korea’s won was among the worst-performing currencies. While China’s markets are shut, the yuan slid past 6.9 per dollar in offshore trading.
The latest selloff in U.S. government bonds took hold Wednesday in the wake of stronger-than-expected data on private-sector payrolls and the non-manufacturing sector, which have reaffirmed investor confidence in the American growth story. After Fed Chairman Jerome Powell said the central bank could eventually boost its benchmark past the neutral level, U.S. payrolls data on Friday may stoke expectations for rate hikes into 2019.
The bond slump likely also reflects the growing impact of the world’s major central banks stepping back from stimulus. The ECB this month cut monthly asset purchases in half, while the Fed balance sheet unwind continues.
“This withdrawal of liquidity and gradual tightening of monetary policy” is reverberating across financial markets, Bob Baur, chief global economist at Principal Global Investors, said in an interview with Bloomberg Television in Tokyo Thursday. “We look for 10-year Treasury yields to hit 3.5 at some point — later this year, early next year — and I think that’s going to be a real problem for stock markets.”
Elsewhere, 10-year Japanese government bond yields climbed past 0.15 per cent, toward the upper end of the Bank of Japan’s tolerance zone of plus or minus 0.2 per cent. West Texas Intermediate crude edged lower after touching the highest level since 2014 this week.
These are the main moves in markets:
Stocks
Futures on the S&P 500 Index decreased 0.5 per cent as of 5:58 a.m. New York time, the lowest in more than a week on the largest dip in more than two weeks. The Stoxx Europe 600 Index dipped 0.7 per cent to the lowest in more than two weeks. The U.K.’s FTSE 100 Index sank 1 per cent to the lowest in two weeks on the largest decrease in more than four weeks. Germany’s DAX Index fell 0.3 per cent. The MSCI Asia Pacific Index sank 1.2 per cent to the lowest in three weeks on the largest tumble in more than four weeks. The MSCI Emerging Market Index sank 2 per cent to the lowest in more than three weeks on the biggest tumble in more than six months.
Currencies
The Bloomberg Dollar Spot Index rose 0.2 per cent, hitting the highest in seven weeks with its sixth straight advance. The euro increased 0.2 per cent to US$1.1498, the first advance in more than a week and the biggest climb in two weeks. The British pound gained 0.3 per cent to US$1.2982, the largest rise in more than a week. The Japanese yen increased 0.2 per cent to 114.32 per dollar.
Bonds
The yield on 10-year Treasuries climbed three basis points to 3.21 per cent, the highest in more than seven years. Germany’s 10-year yield climbed five basis points to 0.53 per cent, the highest in more than a week on the biggest surge in almost four months. Britain’s 10-year yield climbed nine basis points to 1.663 per cent, the highest in almost three years on the largest surge in more than five weeks. The spread of Italy’s 10-year bonds over Germany’s fell less than one basis point to 2.8372 percentage points.
Commodities
West Texas Intermediate crude fell 0.1 per cent to US$76.30 a barrel, the largest fall in more than a week. Gold climbed 0.2 per cent to US$1,199.36 an ounce.
Source: BNN Bloomberg
https://www.bnnbloomberg.ca/global-stocks-under-pressure-as-u-s-treasury-yields-soar-1.1147338
