Sell-off in US Government Debt Pushes Bond Yields to 16-Year High
The sell-off in US government debt continues, causing yields on benchmark Treasuries to reach a new 16-year high. The yield on the 10-year note rose as much as 0.1 percentage points to 4.35%, surpassing a previous high in October. This increase in yields is a reflection of an economy that shows no signs of slowing down.
Investors are closely watching the upcoming Jackson Hole conference, where central bank chiefs from around the world will gather. It is expected that policymakers may signal that interest rates must stay higher for an extended period in order to keep inflation moving lower. Investors will pay particular attention to Federal Reserve chair Jay Powell’s speech on Friday for any hints on the direction of US monetary policy.
Experts predict that Powell will present a modestly hawkish policy stance, allowing for the possibility of more tightening while dampening expectations of early rate cuts. The months-long sell-off in US Treasuries has also affected bond markets in the UK and Germany, with yields on 10-year bonds reaching their highest levels since 2008 and 2011, respectively.
The robust economic data over the summer has raised doubts about the possibility of rate cuts by the Federal Reserve anytime soon. This has been a primary reason behind the sell-off in the Treasury market. Karl Schamotta, chief market strategist at Corpay, attributes the rise in yields to the US economy consistently surpassing expectations and pushing yields higher.
In other news, the benchmark S&P 500 saw a 0.7% increase following a sharp sell-off last week, and the tech-heavy Nasdaq Composite gained 1.5%. Shares in chipmaker Nvidia rose 8.5% ahead of its earnings report later this week.
However, fears about the outlook for China’s economy continue to weigh on global markets. The People’s Bank of China’s latest policy decision to lower its one-year loan prime rate fell short of market expectations. The move comes at a time when calls for sweeping government support measures are growing amid concerns about China’s struggling economy.
Researchers from UBS Investment Bank have downgraded their forecasts for China’s economic growth, citing a downturn in the property sector, waning global demand, and underwhelming government stimulus. Recent data releases have also shown signs of deflation and a drop in exports.
European equities made cautious gains, with the region-wide Stoxx 600 rising slightly. Energy stocks led gainers in Europe as oil prices strengthened, signaling tightening global supply.
Overall, the sell-off in US government debt and concerns about China’s economy are dominating the market sentiment as investors await further clarity from central bank policymakers and corporate earnings reports.