TOKYO (Reuters) – Emerging concerns over rising US bond yields hit global equities on Thursday as investors waited to see if Federal Reserve Chairman Jerome Powell raised concerns about the risk of a rapid rise in long-term borrowing costs will address.
The spectrum of higher US bond yields also undermined low-yield, safe-haven assets such as the yen, the Swiss franc and gold.
The US treasury for ten years has risen to 1.477%, and is at an annual high of 1.614% set last week on bets on a strong economic recovery, aided by the government’s stimulus and progress with vaccination programs.
“It’s not clear how the Fed wants to deal with the yields on bonds,” said Hirokazu Kabeya, world chief strategist at Daiwa Securities.
“The rate of increase in yields has been much faster than most people expected, and it is speculated that the authorities may be considering tightening their policies.”
Euro Stoxx 50 futures fell 0.9%, while UK FTSE futures fell 0.5%.
The MSCI’s former Japan-Asia-Pacific shares lost early trading by 1.8%, while the Japanese Nikkei fell by 2.2%.
E-mini S&P futures slipped 0.4%, while the futures contract for the Nasdaq, the undisputed leader of the post-pandemic march, fell 0.7% to hit a two-month low .
Technical stocks are vulnerable because their high valuation is supported by the expectations of a long period of low interest rates.
But the market is laser-focused on Powell, who will speak at a Wall Street Journal conference at 12:05 EST (1705 GMT), in what will be his last outing before the Fed’s policy-making committee meets on March 16. 17.
Many Fed officials have underestimated the rise in treasury yields over the past few days, although Fed Governor Lael Brainard on Tuesday acknowledged concerns about the possibility that a rapid rise in yields could dampen economic activity.
In addition, the anxiety about a pending regulatory change in a rule is developing, the supplementary leverage ratio, or SLR, which could make it more expensive for banks to hold bonds.
“The market is likely to be volatile until this regulatory issue is sorted out,” said Masahiko Loo, AllianceBernstein’s portfolio manager. “There are no people who want to catch a falling knife when market volatility is so high.”
In addition, the market will also have to contend with a huge increase in debt sales after stimulation to deal with a recession caused by the pandemic.
The issue is not just limited to the United States; the British Gilts yield period of ten years fell back to 0.779%, near its 11-month high of 0.836% hit last week, after the government announced much higher loans.
Currency investors have continued to pick up dollars as they bet on the U.S. economy surging peers in the developed world in the coming months. [FRX/]
The dollar rose to a seven-month high of 107.16 yen.
“The US dollar / yen has been in one direction since the beginning of 2021,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia.
“The brightening outlook for the world economy is positive for both the US dollar / yen and the Australian dollar / yen.”
Other safe-haven currencies were soft, with the Swiss franc having a low of four months against the dollar and a trough of 20 months against the euro.
Gold hit a nine-month low of $ 1,702.8 per ounce on Wednesday and last stood at $ 1,719.
Other major currencies were low, with the euro at $ 1,2054.
Investors’ focus on an economic downturn in the US is unwavering through data released overnight showing the US labor market struggling in February, when private payrolls rose less than expected.
Oil prices rose straight for a second session early Thursday, as the possibility that OPEC + producers would decide to increase production at a major meeting later in the day, against a drop in U.S. fuel supplies. [O/R]
U.S. crude oil rose 0.6 percent to $ 61.64 a barrel.
Additional reporting by Koh Gui Qing in New York; Edited by Sam Holmes, Richard Pullin and Simon Cameron-Moore