Government bonds slumped, wiping out early gains in US equity futures, as traders speculated central banks will keep interest rates elevated to quell inflation. The dollar hit its highest level since March.
(Bloomberg) — Government bonds slumped, wiping out early gains in US equity futures, as traders speculated central banks will keep interest rates elevated to quell inflation. The dollar hit its highest level since March.
Germany’s 10-year yield rose to the highest since 2011 and the Stoxx 600 sank 0.6%, dragged down by mining shares. Rio Tinto Plc fell as much as 5.2% as China’s property problems weighed on the outlook for natural resources.
After the salvo of central bank decisions last week, traders are increasingly concerned that rising oil prices risk fanning inflation, which will make it difficult for policymakers to reduce rates anytime soon. Oil resumed a rally as hedge funds piled on bets tightening supplies will stoke demand. Bloomberg’s Dollar Spot Index rose to the highest since March.
“All central banks need to stick to this higher for longer rhetoric as inflation is nowhere close to their mandate,” said Pooja Kumra, senior European rates strategist at Toronto-Dominion Bank.
Two Fed officials said at least one more rate hike is possible and that borrowing costs may need to stay higher for longer for the central bank to ease inflation back to its 2% target. While Boston Fed President Susan Collins said further tightening “is certainly not off the table,” Governor Michelle Bowman signaled that more than one increase will probably be required.
The Treasury 10-year yield may rise to 4.75% before softer risk sentiment and tighter financial conditions push it lower into year-end, according to strategists at Bank of America Corp.
The benchmark traded at 4.49%, just short of Friday’s 16-year high, when it breached the 4.5% level.
Treasury Yield Climbs Past 4.5% as Higher Rate Paradigm Sinks In
Meanwhile, fresh signs of concern for China’s property developers were highlighted by China Evergrande Group’s decision to cancel a creditor meeting, adding to fears about its debt pile. That’s compounding concern that global growth will stall as the economic engine of China sputters.
Key events this week:
- Minneapolis Fed President Neel Kashkari in Q&A, Monday
- ECB’s Francois Villeroy de Galhau speaks on monetary policy, Monday
- US new home sales, Conference Board consumer confidence, Tuesday
- ECB’s Philip Lane speaks on monetary policy, Tuesday
- China industrial profits, Wednesday
- US durable goods, Wednesday
- Eurozone economic confidence, consumer confidence, Thursday
- US initial jobless claims, GDP, Thursday
- Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
- Eurozone CPI, Friday
- Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
- US consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday
- ECB President Christine Lagarde speaks, Friday
- New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.6% as of 10:43 a.m. London time
- S&P 500 futures fell 0.1%
- Nasdaq 100 futures fell 0.2%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index fell 0.5%
- The MSCI Emerging Markets Index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.2% to $1.0631
- The Japanese yen fell 0.2% to 148.60 per dollar
- The offshore yuan fell 0.2% to 7.3128 per dollar
- The British pound fell 0.2% to $1.2220
Cryptocurrencies
- Bitcoin fell 1.6% to $26,080.9
- Ether fell 1% to $1,574.75
Bonds
- The yield on 10-year Treasuries advanced six basis points to 4.49%
- Germany’s 10-year yield advanced six basis points to 2.80%
- Britain’s 10-year yield advanced six basis points to 4.30%
Commodities
- Brent crude rose 0.4% to $93.60 a barrel
- Spot gold fell 0.2% to $1,922.21 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller, Richard Henderson, Toby Alder, Michael Msika, Alex Nicholson and Constantine Courcoulas.
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