The rout in Treasuries intensified as traders looked to Federal Reserve Chief Jerome Powell for clues on the direction of interest rates. US stocks lost ground.
(Bloomberg) — The rout in Treasuries intensified as traders looked to Federal Reserve Chief Jerome Powell for clues on the direction of interest rates. US stocks lost ground.
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, around 4.7%, during a roundtable discussion with Powell that also included Philadelphia Fed President Patrick Harker. 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.
One of the most hawkish members of the FOMC, Michelle Bowman, reiterated a call for multiple hikes after New York Fed boss John Williams suggested Friday interest rates should stay high for some time.
Read more: Fed’s Bowman Again Urges Multiple Rate Hikes to Curb Inflation
The S&P 500 slumped while the tech-heavy Nasdaq 100 pared gains. Lawmakers’ deal over the weekend to avoid a government shutdown gave equities a brief respite as the focus in markets quickly shifted back to interest rates, especially as rising oil prices threaten to fan inflation.
“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.”
At a separate event, 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.
After crude’s biggest quarterly gain since March 2022, oil was in retreat with West Texas Intermediate dropping below $90 a barrel.
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.
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 fell 0.4% as of 12:05 p.m. New York time
- The Nasdaq 100 rose 0.4%
- The Dow Jones Industrial Average fell 0.6%
- The Stoxx Europe 600 fell 1%
- The MSCI World index fell 0.7%
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.7% to $1.0494
- The British pound fell 0.6% to $1.2123
- The Japanese yen fell 0.3% to 149.82 per dollar
- Bitcoin rose 3% to $27,916.28
- Ether rose 0.8% to $1,687.96
- 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 1.5% to $89.44 a barrel
- Gold futures fell 1% to $1,847.50 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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