TOKYO (Reuters) – Exciting concerns about rising US bond yields hit global stocks Thursday as investors waited to see if Federal Reserve Chairman Jerome Powell allay concerns about the risk of a rapid rise in long-term loan costs.
The specter of higher US bond yields also undermined low-yield safe havens such as the yen, Swiss franc and gold.
Benchmark 10-year US Treasuries rose to 1.477%, hitting a one-year high of 1.614% last week on bets on a strong economic recovery supported by government stimulus and advances in vaccination programs.
“It’s not clear how the Fed wants to deal with bond rates,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
“The pace of yield increases has been much faster than most people expected and there is speculation that authorities may start to consider tightening their policies.”
Euro Stoxx 50 futures fell 0.9%, while UK FTSE futures fell 0.5% lower.
The ex-Japan Asian-Pacific shares of the MSCI lost 1.8% in early trading, while the Japanese Nikkei fell 2.2%.
E-mini S&P futures fell 0.4%, while futures for the Nasdaq, the unequivocal leader of the post-pandemic rally, fell 0.7% and hit a two-month low.
Tech stocks are vulnerable as their high valuation has been supported by expectations of a prolonged 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 p.m. EST (1705 GMT) in what will be his final outing before the Fed’s policy-making committee meets on March 16. 17.
Many Fed officials have downplayed the rise in government bond yields in recent days, though Fed Governor Lael Brainard on Tuesday acknowledged concerns about the possibility that a rapid rise in interest rates could dampen economic activity.
In addition, concerns are growing about an imminent regulatory change to a rule called the supplemental leverage ratio, or SLR, which could make it more expensive for banks to hold bonds.
“The market is likely to be unstable until this regulatory issue is resolved,” said Masahiko Loo, portfolio manager at AllianceBernstein. “There are no people who want to catch a falling knife when the market volatility is so high.”
In addition, the market will also have to grapple with a massive increase in debt sales following rounds of stimulus to cope with a recession caused by the pandemic.
The issue is not limited to the United States, where the 10-year UK Gilts yield jumps back to 0.779%, near its 11-month high of 0.836% last week, after the government revealed a much higher loan.
Currency traders continued to bring in dollars as they bet that the US economy would outperform similar countries in the developed world in the coming months. [FRX/]
The dollar rose to a seven-month high at 107.16 yen.
“The US dollar / yen has been a one-way street since early 2021,” said Joseph Capurso, chief of international economics at the Commonwealth Bank of Australia.
“The better outlook for the global economy is positive for both the US dollar / yen and Australian dollar / yen.”
Other safe-haven currencies were weak, with the Swiss franc flirting with a four-month low against the dollar and a 20-month low against the euro.
Gold hit a nine-month low of $ 1,702.8 an ounce on Wednesday, last trading at $ 1,719.
Other major currencies moved little, with the euro steady at $ 1.2054.
Investors’ focus on a US economic recovery was unaffected by overnight data released showing that the US labor market struggled in February, when private wages rose less than expected.
Oil prices rose early on Thursday for a second session in a row, as the possibility that OPEC + producers would decide not to increase production at a key meeting later in the day was supported by a drop in US fuel stocks. [O/R]
US crude oil rose 0.6% to $ 61.64 a barrel.
Additional reporting by Koh Gui Qing in New York; Editing by Sam Holmes, Richard Pullin and Simon Cameron-Moore