Resurgent concerns over rising U.S. sovereign bond yields hit global stocks on Thursday as investors waited to see whether Federal Reserve Chairman Jerome Powell will address concerns about the risk of rapidly rising costs long-term borrowing.
The specter of rising US bond yields has also plagued low-yielding assets and havens such as the yen, Swiss franc and gold. Bond yields rise as their prices fall, with investors reducing their exposure to the relative safety of fixed income securities in favor of riskier assets such as stocks.
But higher yields also mean higher borrowing costs, which is bad news for anyone with debt.
The benchmark 10-year U.S. Treasury yield fell to 1.477%, slipping back to a one-year high of 1.614% set last week, with investors betting on a strong economic recovery aided by the government stimulus and progress of immunization programs.
“We don’t know how the Fed [Federal Reserve] wants to deal with bond yields, ”said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
“The pace of rising yields has been much faster than most people expected and there is speculation that authorities may start to consider tightening policy.”
Euro Stoxx 50 futures fell 0.9% while UK FTSE futures edged down 0.5%.
MSCI’s ex-Japan Asia-Pacific stocks fell 1.8% at the start of trading, while Japan’s Nikkei fell 2.2% and China’s CSI 300 index fell 2.8% .
E-mini futures for the US S&P 500 index slipped 0.4% while futures for the Nasdaq, the unequivocal leader of the post-pandemic rally, fell 0.7%, reaching a low for two months.
Tech stocks are vulnerable as their high valuations after dramatic gains in 2020 have been supported by expectations of a prolonged period of low interest rates.
Powell in the spotlight
But the market is focused on Powell, who is due to speak at a Wall Street Journal conference at 12:05 p.m. EST (5:05 p.m. GMT), in what will be his last outing before the US central bank policy making. the committee meets from March 16 to 17.
Many Federal Reserve officials have played down the rise in Treasury yields in recent days, although Federal Reserve Governor Lael Brainard on Tuesday admitted concerns that a rapid rise in yields could dampen the ‘economic activity.
In addition, concern is mounting over an ongoing regulatory change in a rule called the Additional Leverage Ratio (SLR) that could make it more expensive for banks to hold bonds.
“The market will likely be volatile until this regulatory issue is resolved,” said Masahiko Loo, portfolio manager at AllianceBernstein. “There are no people who want to catch a falling knife when the market volatility is so high.”
In addition, the market will also face a huge increase in debt sales after rounds of government stimulus measures to deal with the recession triggered by the pandemic.
The problem is not confined to the United States, with the UK 10-year Gilts yield rising to 0.779%, close to the 11-month high of 0.836% reached last week, after the government unveiled a sharp increase in borrowing.
The strength of the dollar
Currency investors continued to climb in US dollars as they bet on the US economy outperforming its peers in the developed world in the months to come.
The dollar hit a seven-month high at 107.16 Japanese yen.
“The US dollar / yen has been on a one-sided path since early 2021,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia.
“The improving outlook for the global economy is positive for both the US dollar / yen and the Australian dollar / yen.”
Other safe-haven currencies were more flexible, with the Swiss franc flirting with a four-month low against the US dollar and a 20-month low against the euro.
Gold hit a nine-month low at $ 1,702.8 an ounce on Wednesday and last stood at $ 1,719.
The other major world currencies were little moved, with the euro remaining stable at $ 1.2054.
Investors’ hopes of a rebound in the US economy were not shaken by data released Wednesday night that showed the US labor market struggling in February, when private payrolls rose less than expected.
Oil prices rose for a second straight session early Thursday in Asia. The possibility that the world’s major producers will decide not to increase production at a key meeting later in the day and a drop in increased US inventories have supported prices.
US crude rose 0.6 percent to $ 61.64 a barrel.