A selloff in government bonds accelerated Monday as the threat of further interest rate hikes unsettled traders.
(Bloomberg) — A selloff in government bonds accelerated Monday as the threat of further interest rate hikes unsettled traders.
The yield on 30-year German bonds rose as much as nine basis points to 2.72%, the highest since early 2014. Ten-year Treasury yields jumped five basis points. US equity futures rose modestly, signaling a rebound from Friday’s retreat.
Investors were focusing on data that shows US economic strength and comments from Federal Reserve Governor Michelle Bowman over the weekend that rates may need to rise further to bring down inflation.
A closely watched measure of US inflation due this week could stoke more volatility. The consumer price index reading on Thursday is projected to rise 0.2% in July for a second month after excluding food and energy costs, marking the smallest back-to-back gains in 2 1/2 years.
“The door for further rate hikes from the Fed is still open,” said Pooja Kumra, senior European rates strategist at the Toronto Dominion Bank.
Bond markets have been reeling since last week, when a bigger-than-expected Treasury issuance plan sent 30-year yields to nine-month highs. A decision by Fitch Ratings to cut the US credit rating and a hawkish Bank of Japan policy tweak have also fanned market volatility.
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In equities trading, S&P 500 futures ticked higher, while European stocks retreated as an index of German industrial output fell to a six-month low, underscoring weakness in the economy.
“US equity futures have been off the Friday lows so far, suggesting that a bounce may happen and driving some sort of cross-asset flows from bonds to equities,” said Evelyne Gomez-Liechti, rates strategist at Mizuho International Plc.
Investors are torn between signs that inflation remains sticky and hopes that the rate-hiking cycle is near an end. That’s reflected in sharply divergent positioning between hedge funds and traditional investors. Bearish positioning by speculative investors ballooned to a record while more traditional investors have been caught wrong-footed betting on lower yields.
Hedge Funds Boosted Record Treasury Shorts as Markets Convulsed
Among individual movers, Tyson Foods Inc. sank almost 8% in US premarket trading after reporting a sharp drop in earnings and saying it will shut down more US chicken plants. Sage Therapeutics Inc. declined as much as 53% after regulators granted approval to its fast-acting pill only for postpartum depression, denying the drug clearance for major depressive disorder.
Key events this week:
- Atlanta Fed President Raphael Bostic and Fed Governor Michelle Bowman at Fed Listens event, Monday
- Japan household spending, Tuesday
- US wholesale inventories, trade, Tuesday
- Philadelphia Fed President Patrick Harker speaks, Tuesday
- China CPI, PPI, Wednesday
- India rate decision, Thursday
- US initial jobless claims, CPI, Thursday
- Atlanta Fed President Raphael Bostic pre-recorded remarks for employment webinar, Thursday
- UK industrial production, GDP, Friday
- US University of Michigan consumer sentiment, PPI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.3% as of 8:40 a.m. New York time
- Nasdaq 100 futures rose 0.4%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The Stoxx Europe 600 was little changed
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2% to $1.0982
- The British pound was little changed at $1.2759
- The Japanese yen fell 0.3% to 142.16 per dollar
Cryptocurrencies
- Bitcoin fell 0.4% to $28,991.5
- Ether was little changed at $1,828.66
Bonds
- The yield on 10-year Treasuries advanced five basis points to 4.08%
- Germany’s 10-year yield advanced three basis points to 2.59%
- Britain’s 10-year yield advanced six basis points to 4.44%
Commodities
- West Texas Intermediate crude fell 1% to $81.97 a barrel
- Gold futures fell 0.2% to $1,971.60 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sagarika Jaisinghani, Naomi Tajitsu and Dayana Mustak.
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