US Treasury yields climb as Fed worries spark global sell-off

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Treasury yields touched a 16-year high as global stocks and bonds slid after strong US economic data added to investors’ fears that interest rates will stay higher for longer to combat persistent inflation.

The benchmark 10-year Treasury note was up 0.13 percentage points to 4.47 per cent in afternoon trading and after data showed US applications for unemployment benefits — a proxy for lay-offs — last week fell to their lowest level since January.

Longer-dated US Treasuries also sold off, with the yield on the 30-year bond rising 0.15 percentage points to 4.55 per cent.

The moves came after the US Federal Reserve on Wednesday stressed its commitment to keeping rates high. The central bank kept its critical federal funds rate steady at a target range of 5.25-5.5 per cent, but forecast another 0.25 percentage point increase by the end of this year, while pencilling in only two rate cuts for 2024.

“It would be short-sighted to believe that the battle on inflation has been won, particularly with oil creeping up to year-to-date highs,” said Michael Sheehan, fixed income fund manager at EdenTree. “With Fed chair [Jay] Powell guiding ‘higher for longer’ [ . . . ] US bonds are likely to remain under pressure.”

The move spread to other government bond markets. Yields on 10-year German debt, the regional benchmark for Europe, rose as much as 0.07 percentage points to 2.78 per cent, the highest level since 2011. Bond yields rise as prices fall.

Equity markets also slid. Wall Street’s benchmark S&P 500 was down 1.2 per cent in afternoon trading and the tech-focused Nasdaq Composite declined 1.3 per cent.

The Stoxx Europe 600 slid 1.3 per cent, lead by declines for basic materials stocks, as investors feared an extended period of higher interest rates would curb economic demand. In Asia, China’s benchmark CSI 300 was down 0.9 per cent and Hong Kong’s Hang Seng finished 1.3 per cent lower.

Brent crude gained 0.2 per cent to $93.60 a barrel on Thursday, while the US equivalent West Texas Intermediate was flat $89.63 a barrel, remaining near the 10-month peak they hit earlier this week.

The dollar index, which tracks the buck against a basket of six peers and which tends to rise when investors expect higher rates, hit a six-month high earlier in the day before falling back to be up 0.2 per cent by mid-afternoon in New York.

Meanwhile, the pound hit a six-month low, dropping 0.4 per cent to £1.2299 against the dollar after the Bank of England held its benchmark interest rates at 5.25 per cent. The FTSE 100 outperformed peers, down 0.7 per cent. Many companies on the benchmark earn revenues in dollars but report earnings in sterling.

The UK central bank had lagged behind peers in the US and Europe in its efforts to cool stubborn inflation. In Switzerland, lower inflation data allowed the Swiss National Bank to keep its policy rate unchanged at 1.75 per cent on Thursday, marking the first pause in the central bank’s tightening campaign since March 2022.