NEW YORK, July 23 — Fear that US and Japanese policymakers will scale back economic stimulus sent quivers through debt markets yesterday, while US stocks gained ahead of major company earnings reports.
Bond yields climbed as investors forecast the Federal Reserve will continue raising interest rates due to stronger growth and inflation pressures despite US President Donald Trump’s criticism and after a Reuters report that the Bank of Japan (BoJ) is discussing modifying its huge stimulus program sent Japan’s 10-year bond yield soaring near six-month highs.
The report rekindled anxiety about whether monetary policymakers will continue lending support to the global economy and piled pressure on investors navigating rising protectionism.
US 10-year Treasury yields hit the highest in a month, trading at 2.9615 per cent.
“It’s all that concern investors have about the move from global quantitative easing to global quantitative tightening,” said Rory McPherson, Psigma Investment Management Ltd’s head of investment strategy.
“That fear gets stoked when you have reports such as this.”
Sage Advisory Services Ltd President Bob Smith said there is no “800-pound gorilla” willing to absorb rising bond inventories. Several US bond auctions are scheduled this week.
“You’re sitting right in the dead of summer,” he said.
“I don’t think the superheroes are on the (trading) desks right now. They’re probably on the beach.”
Beijing said it does not intend to devalue the yuan to help exports.
“We see the latest news on trade policy as pointing to continued high risk of escalation between the US and China, and a renewed focus of the Trump Administration on currency matters,” Goldman Sachs analysts said.
Trump’s warnings last week about excessive rate hikes also widened the gap between short- and long-term Treasury yields. That yield curve “steepening” accelerated yesterday, with yields on 30-year Treasuries 0.46 per centage point higher than their 2-year counterparts, the biggest gap in nearly a month.
Fed policy drives short-end Treasury yields, while inflation and growth expectations move longer-term yields. The gap has been shrinking this year, which some investors view as a cue for recession.
US stocks gain
Trump’s threats to slap duties on all US$500 billion (RM2.032 trillion) of US imports from China triggered selloffs across global stock markets.
Yet the S&P 500 managed gains ahead of potentially blockbuster earnings.
Financials welcome steep yield curves because they borrow at short-term rates and lend over longer periods, profiting on the difference.
MSCI’s gauge of stocks globally shed 0.01 per cent, with equities broadly lower across Europe, Japan and emerging markets.
The Dow Jones Industrial Average fell 13.83 points, or 0.06 per cent, to 25,044.29, the S&P 500 gained 5.15 points, or 0.18 per cent, to 2,806.98 and the Nasdaq Composite added 21.68 points, or 0.28 per cent, to 7,841.87.
Investors are bracing for a packed earnings week, including Facebook Inc’s results, and a meeting on tariffs between European Commission President Jean-Claude Juncker and Trump.
Oil prices fell after earlier gains. Saudi Arabia and other producers could raise production before a November deadline for countries to comply with US sanctions on Iranian crude sales, traders said.
US crude settled down 0.54 per cent at US$67.89 per barrel and Brent ticked down 0.01 per cent to US$73.06.
Both copper and gold neared one-year lows. Copper – among the most sensitive to trade tensions – lost 0.32 per cent, trading at US$6,128.00 a tonne.
Spot gold dropped 0.6 per cent to US$1,224.31 an ounce. A strong greenback makes the metal, which is priced in dollars, more expensive to international buyers. — Reuters
Source: The Malay Mail Online