Bond scares linger, investors look to Fed
Worries about lofty US bond yields have hit global shares as investors wait to see if Federal Reserve chair Jerome Powell will address concerns about a rapid rise in long-term borrowing costs.
The spectre of higher US bond yields has also undermined low-yielding, safe-haven assets such as the yen, the Swiss franc and gold.
Benchmark 10-year US Treasuries slipped to 1.453 per cent on Thursday. They earlier touched their highest levels since a one-year high of 1.614 per cent set last week on bets on a strong economic recovery aided by government stimulus and progress in vaccination programs.
The Euro STOXX 600 was down 0.5 per cent and London's FTSE was 0.6 per cent lower.
The MSCI world equity index, which tracks shares in 49 countries, lost 0.5 per cent, its third day running of losses.
The MSCI's ex-Japan Asian-Pacific shares lost 1.8 per cent, while Japan's Nikkei fell 2.1 per cent to its lowest since February 5.
E-mini S&P futures slipped 0.2 per cent. Futures for the Nasdaq, the leader of the post-pandemic rally, fell 0.1 per cent , earlier hitting a two-month low.
Tech shares are vulnerable because their lofty valuation has been supported by expectations of a prolonged period of low interest rates.
But the market is focused on Powell, who is due to speak at a Wall Street Journal conference on Thursday in what will be his last outing before the Fed's policy-making committee convenes on March 16-17.
Many Fed officials have played down the rise in Treasury yields in recent days, although Fed Governor Lael Brainard on Tuesday acknowledged that concerns over the possibility a rapid rise in yields could dampen economic activity.
In addition, anxiety is building over a pending regulatory change in a rule called the supplementary leverage ratio, or SLR, which could make it more costly for banks to hold bonds.
The market will also have to grapple with a huge increase in debt sales after rounds of stimulus to deal with a recession triggered by the pandemic.
The issue is not limited to the United States, with the 10-year UK Gilts yield on Wednesday touching 0.796 per cent, near last week's 11-month high of 0.836 per cent, after the government unveiled much higher borrowing.
On Thursday, Germany's 10-year yield was down two basis points to -0.31 per cent after rising five basis points on Wednesday, still moving in tandem with US Treasuries.
Currency investors continued to snap up dollars as they bet on the US economy outperforming its peers in the developed world in coming months. The dollar rose to a roughly seven-month high of 107.33 yen.
Other safe-haven currencies were weakened, with the Swiss franc dropping to a five-month low against the dollar and a 20-month trough versus the euro.
Other major currencies were little changed, with the euro flat at $US1.2054.
Gold fell to a near nine-month low of $US1,702.8 per ounce on Wednesday and last stood at $US1,714.
Oil prices rose for a second straight session on Thursday, as the possibility that OPEC+ producers might decide against increasing output at a key meeting later in the day underpinned a drop in US fuel inventories.
US crude rose 0.6 per cent to $US61.65 per barrel. Brent crude futures added 0.7 per cent to $US64.54 a barrel.
Get the latest news from thewest.com.au in your inbox.
Sign up for our emails