The rout in Treasuries intensified and US stocks lost ground as traders digested messaging that the Federal Reserve needs to leave borrowing costs high to rein in inflation.
(Bloomberg) — The rout in Treasuries intensified and US stocks lost ground as traders digested messaging that the Federal Reserve needs to leave borrowing costs high to rein in inflation.
Yields on five-year to 30-year Treasuries rose 10 basis points on the day. The rate on the 10-year benchmark bond hit the highest since 2007, reaching 4.7%, while the 30-year topped 4.81%, the highest since 2010.
Vice Chair for Supervision Michael Barr said Monday, the biggest question before central bankers was how long to leave interest rates elevated while Michelle Bowman, a known FOMC hawk, reiterated her call for multiple hikes. On Friday, New York Fed boss John Williams had suggested interest rates should stay high for some time.
Read more: Fed’s Barr Says Biggest Question Is How Long Rates Stay High
The S&P 500 ended the day little changed with NextEra Energy Partners LP dragging on the US stocks benchmark after a downgrade. Energy stocks sold off erasing the gains for the year in the S&P/Toronto Stock Exchange Composite Index. The Nasdaq 100 ended the session up 0.8% buoyed by the nation’s largest technology firms including Microsoft Corp., Apple Inc. and Nvidia Corp.
An early sigh of relief for stocks after a weekend deal to avoid a government shutdown was short-lived as the focus in markets quickly shifted back to interest rates.
“It’s a pretty bearish signal that the S&P 500 is down today given the fact that Congress came in and averted a risk that was on everyone’s radar as far as the government shutdown,” said Mike Harris, president of Quest Partners. “The fact that we’re not seeing a more significant rally is meaningful, and once again this move up in interest rates in large part is the market finally waking up to this reality of higher rates for longer.”
The selloff in global bonds has gathered momentum as the US shutdown reprieve prompted traders to raise bets on a November rate hike from the Fed. They now see a roughly one-in-three chance of a November move, up from the 25% likelihood priced on Friday.
Bank of England policy maker Catherine Mann called herself a hawk on interest rate policy while warning that inflation shocks were likely to be more frequent. Gilts underperformed in global bonds.
Read Surveillance: ‘Something Will Break’ With Yields Grinding Higher
The dollar rose versus its Group-of-10 peers, after enjoying its best quarter in a year. Against the yen, it touched a year-to-date high, after the Bank of Japan said it would conduct an additional buying operation. Gold prices slipped to seven-month lows, extending last week’s 4% slide, under pressure from surging bond yields.
After crude’s biggest quarterly gain since March 2022, oil was in retreat with West Texas Intermediate dropping below $90 a barrel.
History suggests the US needs to brace for a recession, Bloomberg economists warned. A major auto strike, the resumption of student-loan repayments and the still-looming prospect of an eventual government shutdown menace recent market gains.
Read more: Why a US Recession Is Still More Likely Than a Soft Landing
Key events this week:
- China has week-long holiday
- New York Fed President John Williams moderates discussion on climate risk, Monday
- Cleveland Fed President Loretta Mester speaks on economic outlook, Monday
- US ISM manufacturing index, Monday
- Australia rate decision, Tuesday
- Atlanta Fed President Raphael Bostic speaks on economic outlook and inflation, Tuesday
- August US JOLTS report, Tuesday
- Eurozone services and composite PMIs, Wednesday
- ECB President Christine Lagarde gives welcome address at conference, Wednesday
- US ISM services index, Wednesday
- France industrial production, Thursday
- BOE Deputy Governor Ben Broadbent, Riksbank First Deputy Governor Anna Breman participate at panel discussion, Thursday
- San Francisco Fed President Mary Daly speaks at the Economic Club of New York, Thursday
- Germany factory orders, Friday
- September US nonfarm payrolls, Friday
Some of the main moves in markets:
- The S&P 500 was little changed as of 4 p.m. New York time
- The Nasdaq 100 rose 0.8%
- The Dow Jones Industrial Average fell 0.2%
- The MSCI World index fell 0.5%
- The Bloomberg Dollar Spot Index rose 0.7%
- The euro fell 0.9% to $1.0482
- The British pound fell 0.9% to $1.2093
- The Japanese yen fell 0.3% to 149.82 per dollar
- Bitcoin rose 3.1% to $27,955.22
- Ether was little changed at $1,673.03
- The yield on 10-year Treasuries advanced 12 basis points to 4.69%
- Germany’s 10-year yield advanced eight basis points to 2.92%
- Britain’s 10-year yield advanced 13 basis points to 4.56%
- West Texas Intermediate crude fell 2.2% to $88.76 a barrel
- Gold futures fell 1.1% to $1,846 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sujata Rao, Matthew Burgess, Joanna Ossinger, Tassia Sipahutar and Elizabeth Stanton.
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