Bonds Resume Selloff As Hawkish Fed Talk Sinks In: Markets Wrap

Government bonds and stocks fell as traders speculated central banks will keep interest rates elevated to quell inflation. The dollar hit its highest level since March as investors sought safety.

Contracts for the S&P 500 and tech-heavy Nasdaq 100 pointed to extended losses as traders returned to their desks following the worst weekly selloff on Wall Street since March. The US Treasury yield hit a fresh 2007 high of 4.5% while the German benchmark rose to the highest since 2011. Mining shares dragged down the Stoxx Europe 600 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.

Surging oil prices and a massive fiscal deficit are spurring losses in government debt, sending Treasury yields across the maturity curve to the highest levels in more than a decade. 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.

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.

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In premarket trading, Warner Bros Discovery Inc. climbed about 4%, leading film and TV producers higher, after striking Hollywood screenwriters reached a tentative new labor agreement. By contrast, Foot Locker Inc. and Nike Inc. were poised for a lower open as Jefferies analysts downgraded the stocks over looming consumer headwinds.

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