LONDON (Reuters) – Concerns over high US bond yields hit global equities on Thursday, as investors waited to see if Federal Reserve Chairman Jerome Powell would address concerns about the rapid rise in long-term borrowing costs.
The spectrum of higher US bond yields also undermined low-yield assets and safe havens, such as the yen, the Swiss franc and gold.
The 10-year US Treasury fell to 1.453%. Earlier, they reached their highest levels since a one-year high of 1.614% was set last week on strong economic recovery, aided by government incentives and progress in vaccination programs.
“Stocks and returns continue to boost and hinder each other,” said James Athey, chief investment officer at Aberdeen Standard Investments.
“The Fed’s speech continues to express very little concern and certainly does not suggest any imminent action to reduce yield increases. Today’s Powell speech is very anticipated, but I am more afraid of hope than of rational expectation. “
The Euro STOXX 600 fell 0.5% and the London FTSE down 0.6%.
The MSCI global capital index, which tracks stocks in 49 countries, lost 0.5% on the third day of losses.
MSCI’s former Japanese Asia-Pacific shares lost 1.8%, while Japan’s Nikkei fell 2.1% to its lowest level since February 5th.
E-mini S&P futures fell 0.2%. Futures for Nasdaq, the leader of the post-pandemic rally, fell 0.1%, reaching a two-month low earlier.
Technical actions are vulnerable because their high valuation has been supported by long-term expectations of low interest rates.
But the market is focusing on Powell, who is due to speak at a Wall Street Journal conference at 12:05 pm EST (1705 GMT), in what will be his last exit before the Fed’s policy-making committee convenes in March 16-17.
Many Fed officials have downplayed Treasury yields in recent days, although on Tuesday, Fed Governor Lael Brainard acknowledged that concerns about the possibility of a rapid rise in yields could slow economic activity.
In addition, anxiety develops on the basis of a pending regulatory change, in a rule called the additional leverage ratio or SLR, which could make it more expensive for banks to hold bonds.
“The market is likely to 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 market volatility is so high.”
The market will also have to contend with a huge increase in debt sales after stimulus rounds to cope with a recession triggered by the pandemic.
The problem is not limited to the United States, and the 10-year yield of the UK Gilts reached 0.796% on Wednesday, close to last week’s 11-month high of 0.836%, after the government revealed much higher loans.
On Thursday, Germany’s 10-year yield fell 2 basis points to -0.31%, after rising 5 basis points on Wednesday, continuing to move in tandem with the US Treasury.
Currency investors have continued to make dollars while betting that the US economy will outperform the developed world in the coming months. [FRX/] The dollar rose to a high of about 7.3 months at 107.33 yen.
“The US dollar / yen has been on a one-way trajectory since early 2021,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia. “The bright outlook for the world economy is positive for both the US dollar / yen and the Australian dollar / yen.”
Other safe haven currencies have weakened, with the Swiss franc falling to a five-month low against the dollar and a 20-month low against the euro.
Other major currencies were slightly modified, the flat euro being 1.2054 USD.
Gold fell to a nine-month low of $ 1,702.8 an ounce on Wednesday, and rose to $ 1,714 a ounce.
Investors’ focus on the US economic recovery was shaken by data released overnight showing that the US labor market was struggling in February, when private wages rose less than expected.
Oil prices rose for a second straight session on Thursday, as the possibility of OPEC + producers deciding against rising production at a later key meeting supported a drop in US fuel stocks. [O/R]
American crude oil rose 0.6% to $ 61.65 a barrel. Brent crude added 0.7% to $ 64.54 a barrel,
Koh Gui Qing’s additional reporting to New York; montages by Sam Holmes, Richard Pullin, Simon Cameron-Moore, Larry King