Treasury Yields Rise, Dollar Lifts, Gold and Oil Under Pressure
Singapore/London, Aug 17 (Reuters) – The U.S. 10-year treasury yield reached its highest level in 10 months on Thursday, causing the dollar to rise and putting pressure on both gold and oil prices. Alongside concerns about China’s economic situation, this has contributed to world stocks reaching five-week lows.
The benchmark 10-year yields hit 4.312% on Thursday, testing October’s 4.338% level, which would be its highest in 16 years.
The primary reason for the rise in yields is strong domestic demand in the U.S. The Federal Reserve’s July meeting minutes, released on Wednesday, indicated a gradual slowdown in the U.S. economy. However, the current data does not support this view.
U.S. retail sales data released earlier this week exceeded expectations, and the Atlanta Federal Reserve’s GDPNow forecast model shows that the U.S. economy is likely to grow at a 5.8% annualized rate in the third quarter.
While expectations for peak U.S. interest rates have not changed significantly, medium-term rate expectations have driven the changes in yields.
The impact of higher yields is a stronger dollar and increased pressure on equities. MSCI’s world index was down 0.18% on Wednesday, reaching its lowest level since Jul 6. Europe’s STOXX 600 fell 0.3%, with the Dutch benchmark down 1.12% due to a 20% drop in Adyen’s shares, as the payment firm’s first-half earnings missed estimates.
However, the sell-off in world shares could pause in the U.S., with Nasdaq and S&P500 share futures up around 0.2%.
China’s economic situation is another concern for investors, as economic data and issues in the property sector have revealed a sluggish post-pandemic recovery. The Asian-Pacific shares index outside Japan slid to its lowest level since late November on Thursday and is down about 8% for August, on track for its worst monthly performance since September 2022.
Hong Kong and onshore Chinese share benchmarks stabilized somewhat, but remain at multi-month lows, as investors hope for government stimulus to boost the economy.
In currency markets, the dollar index reached a two-month peak of 103.59, supported by higher U.S. yields. The Japanese yen touched a nine-month low against the dollar, with traders closely watching for possible intervention cues from Japanese officials.
Oil prices stabilized after three consecutive sessions of declines. U.S. crude rose 0.21% to $79.55 per barrel, while Brent was at $83.82, up 0.44% for the day.
The spike in treasury yields has also weighed on gold prices, pushing the precious metal to a five-month low. Gold was last trading at $1,889 an ounce, reaching as low as $1,888.30.
Overall, the rise in treasury yields has had widespread effects across global markets, impacting currencies, stocks, commodities, and precious metals.
(Reporting by Ankur Banerjee in Singapore and Alun John in London; Additional reporting by Anosha Sircar in Bengaluru; Editing by Muralikumar Anantharaman, Sonali Paul, and Angus MacSwan)