LONDON (Reuters) – US bond yields fell from their 14-month high the day before as markets looked forward to a US economic recovery, while oil stabilized after a 7% decline.
Bond markets have made sharp moves this week as the US Federal Reserve said it expected higher economic growth and inflation in the United States this year, although it reiterated its promise to keep its target interest rate around zero.
Yields on US 10-year notes, which are moving in reverse with price and have risen over the past seven weeks based on growth expectations, peaked to their highest level since January 2020 at 1.754% on Thursday. They were the last at 1.6838%.
The interest on German long-term government bonds fell together with the interest on US government bonds.
“Every man and his dog are looking at bond yields,” said Giles Coghlan, chief currency analyst at HYCM. “Although (Fed Chairman Jerome) Powell was moderate, bond yields rose higher purely in the expectation that the Fed is behind the curve – the market is pricing in rate hikes.”
MSCI world stocks fell 0.21% from a month high in the previous session, although Nasdaq futures were up 0.8% and S&P 500 futures gained 0.4%.
Oil and US stocks were hit on Thursday with concerns about the faltering vaccine rollout and further delays in Europe, after France imposed a month lock in Paris and parts of the north.
French stocks fell 0.5%. UK stocks fell 0.7% while energy stocks fell.
After falling 7% on Thursday, Brent crude oil futures bounced 82 cents to $ 64.09 a barrel. US crude oil rose 88 cents to $ 60.88. [O/R]
The oil pullout wiped out four weeks of gains in a single session amid concerns that global demand would fall short of high expectations.
The rise in government bond yields has given some support to the US dollar.
“The majority of market participants consider the Fed’s cautious approach justified and believe it supports the economic recovery,” Commerzbank analysts said in a note.
“That improves the longer-term economic outlook and therefore justifies higher long-term interest rates as well as a stronger dollar.”
However, the dollar changed little on Friday, falling 0.1% to 91.735 against a basket of currencies and remained stable against the euro at $ 1.1922. It fell 0.2% against the low-yielding yen at 108.63.
Markets were also troubled by the Bank of Japan’s (BOJ) decision to slightly broaden the 10-year yield target and adjust asset purchases.
The bank described the changes as a ‘nimble’ way to make easing more sustainable, although investors seemed to view it as a step back from total stimulus. A decision to limit purchases to only TOPIX-linked ETFs brought the Nikkei down 1.6%.
South Korea lost 1%. Chinese blue chips lost 1.9%, perhaps discouraged by a fiery exchange between Chinese and US diplomats in the first face-to-face talks about the Biden era.
The rise in bond yields has weighed on gold, which offers no fixed yield, and dropped it 0.4% to $ 1,743 an ounce.
Additional reporting by Wayne Cole and Elizabeth Dilts Marshall; edited by Shri Navaratnam, Lincoln Feast, Larry King