The world’s biggest bond market saw a day of reversals, with Treasuries paring their weekly rally as stronger-than-estimated economic data fueled speculation the Federal Reserve will keep its policy tighter for longer.
(Bloomberg) — The world’s biggest bond market saw a day of reversals, with Treasuries paring their weekly rally as stronger-than-estimated economic data fueled speculation the Federal Reserve will keep its policy tighter for longer.
At the end of a week marked by Wall Street’s optimism that the Fed would be closer to ending its interest-rate hikes, a report showed consumer sentiment soared to an almost two-year high while short-term inflation expectations rose. Bonds reacted immediately, with the front-end of the US curve bearing the brunt of the selling.
The two-year US yield, which is more sensitive to imminent central bank moves, climbed nine basis points to 4.7%. That’s a stark contrast to the slide in rates over the past few days. The greenback posted a mild gain, trimming its largest weekly rout since November.
Stocks briefly erased gains after the economic report, but still headed toward their best week since March. Traders sifted through solid results from JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc, which benefited from higher interest rates — but easily beat lowered analyst estimates. Gains in the megacap space helped prop up equities Friday, with Nvidia Corp. hitting an all-time high and Microsoft Corp. up 2%.
The idea that the US economy could slowdown just enough to skirt a recession is so strong that it doesn’t make sense to go against it, according to Mohamed El-Erian.
“You cannot get in the way right now of the soft-landing narrative — that narrative is building momentum,” the chief economic adviser at Allianz SE and a Bloomberg Opinion columnist said Friday.
Market optimism that the economy will run neither too hot nor too cold is unlikely to last, Bank of America Corp.’s strategist Michael Hartnett says. Global equity funds have seen inflows of nearly $70 billion in the past seven weeks, the bank wrote in a note citing EPFR Global data.
“Goldilocks rules risk assets for now,” but the second half is likely to bring higher consumer-price inflation, policy tightening and savings, he wrote.
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Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.2% as of 11:30 a.m. New York time
- The Nasdaq 100 rose 0.7%
- The Dow Jones Industrial Average rose 0.3%
- The Stoxx Europe 600 was little changed
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.1239
- The British pound fell 0.1% to $1.3119
- The Japanese yen fell 0.4% to 138.67 per dollar
Cryptocurrencies
- Bitcoin fell 0.1% to $31,342.02
- Ether rose 0.9% to $2,003.71
Bonds
- The yield on 10-year Treasuries advanced three basis points to 3.79%
- Germany’s 10-year yield advanced two basis points to 2.51%
- Britain’s 10-year yield was little changed at 4.43%
Commodities
- West Texas Intermediate crude fell 1.5% to $75.74 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller, Tassia Sipahutar, Robert Brand, Lynn Thomasson and Felice Maranz.
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