The sell-off in US Treasuries continued for a third consecutive day, pushing 30-year yields to 5%, a level not seen since 2007. This sparked turbulence in global financial markets. With growing confidence that US interest rates might climb further from their current 22-year highs, it appeared likely that 10-year Treasury yields would also reach the significant 5% mark. Consequently, the MSCI all-country equity index hit a six-month low, and European shares opened 0.5% lower. US index futures followed suit after the underlying S&P 500 index fell to a four-month low on Tuesday.
This recent phase of the sell-off was driven by Tuesday’s unexpectedly positive US job data, coupled with a series of hawkish comments from Federal Reserve officials. Market calculations now indicate a one-in-three chance of a rate hike in November and a probability of over 50% for a move in December.
Ben Powell, Chief Asia Pacific Investment Strategist at the BlackRock Investment Institute in Singapore, suggested that the Fed is unlikely to change its current stance anytime soon. Powell also added that the tightening of financial market conditions will persist, with several foreseeable negative consequences.
Ten-year Treasury yields, which serve as the global benchmark for the cost of capital, have risen by around 30 basis points this week. This upward trend has been mirrored by bonds worldwide, with Japan’s five-year borrowing costs hitting a ten-year high, and yields on Chinese investment-grade dollar credit reaching an 11-month peak. In Europe, German yields increased by roughly 5 basis points, reaching levels not seen since 2011.
The impact of the bond sell-off has reverberated across various asset classes. US crude futures slipped below $89 a barrel, and global currencies weakened against the strengthening dollar. The greenback reached a new 10-month high against a basket of Group-of-Ten peers, leading to speculation about possible Japanese intervention to stabilize the yen. Taiwan assured it would step in to mitigate currency fluctuations if necessary, while Indonesian authorities announced they were purchasing bonds to steady the rupiah.
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