The global bonds selloff resumed on Monday, with 10-year Treasury yields rising to the highest since 2007, as investors waited for a speech by Federal Reserve chief Jerome Powell to provide clues on the direction of interest rates.
Treasury 10-year yields rose more than six basis points to 4.64%, while contracts on the US S&P 500 and Nasdaq 100 indexes slid, giving up earlier gains that were fueled by relief lawmakers had reached a deal over the weekend to avoid a government shutdown. However, the focus in markets has quickly shifted back to interest rates, especially as rising oil prices threaten to fan inflation.
Oil futures edged higher, adding to the previous quarter’s 30% advance, as traders placed bets that global demand will continue to run ahead of supply. European shares fell almost 0.5%.
Powell is due to speak at a roundtable discussion alongside Philadelphia Fed President Patrick Harker. Their views will be of particular interest after New York Fed boss John Williams suggested Friday interest rates should stay high for some time.
“Financial markets were bracing for a shutdown, so there’s an element of relief, but it’s only a temporary lifting of one of the clouds hanging over the markets now,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management. “Interest rates and Fed hawkishness remain the name of the game and the main driver of the markets over the next few weeks.”
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.
The dollar edged higher versus its Group-of-10 peers, after enjoying its best quarter in a year. Against the yen, it briefly touched a year-to-date high of 149.82, 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
- Bank of England policy maker Catherine Mann speaks on monetary policy, Monday
- Fed Chair Jerome Powell and Philadelphia Fed President Patrick Harker participate in a roundtable discussion, Monday
- 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
Stocks
- The Stoxx Europe 600 fell 0.4% as of 1:20 p.m. London time
- S&P 500 futures fell 0.2%
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average fell 0.2%
- The MSCI Asia Pacific Index fell 0.3%
- The MSCI Emerging Markets Index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.4% to $1.0535
- The Japanese yen fell 0.2% to 149.74 per dollar
- The offshore yuan fell 0.1% to 7.3005 per dollar
- The British pound fell 0.3% to $1.2162
Cryptocurrencies
- Bitcoin rose 4.2% to $28,258.05
- Ether rose 3.2% to $1,727.6
Bonds
- The yield on 10-year Treasuries advanced six basis points to 4.63%
- Germany’s 10-year yield advanced three basis points to 2.87%
- Britain’s 10-year yield advanced four basis points to 4.47%
Commodities
- Brent crude rose 0.7% to $92.82 a barrel
- Spot gold fell 0.5% to $1,838.77 an ounce
