Bond yields rise after central banks’ flash hikes

Bond yields hit new multi-year highs after a large number of global central banks joined the Federal Reserve in raising interest rates to curb scorching inflation levels at the expense of economic growth.

US 10-year yields exceeded 3.6 per cent, the highest level since February 2011. The two-year interest rate rose well beyond the 4 per cent mark that was breached on Wednesday. Stocks fell, as some Wall Street voices speculated that the S&P 500 could test its June low which stands 3 per cent below current levels. The yen rose as Japan intervened to support the currency for the first time since 1998.

The Fed gave the clearest signal yet that it is willing to take on a recession as the necessary trade-off to regain control of inflation, with officials signaling another 1.25 percentage points of tightening before the end of the year. Switzerland, Norway, Britain and South Africa followed suit with increases of their own as officials rushed to control rampant price increases.

Krishna Guha, Vice President of Evercore ISI: “We see this new higher and longer price trajectory associated with a much higher probability of a hard landing and therefore not only unequivocally tough but unequivocally bad for risk.”

Evercore’s head of equities and quantitative strategist Julian Emanuel lowered his year-end forecast for the S&P 500 to 3,975 from 4,200 following the Federal Reserve’s rate decision on Wednesday and said he expects a “full retest” of the June decline in the coming weeks. The target cut represents a growing possibility of a recession after Jerome Powell warned that a rate hike would not be “painless” for the labor and housing markets.

“The bad news is we’re still in one of the weakest seasonal windows of the year, especially in the middle of the semester,” BTIG’s Jonathan Krinsky said. The good news is that it reverses quickly by mid-October. We believe we test or break the June lows before then, which should constitute a better entry point for the year-end rally.”

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Here are some of the major moves in the markets:

Stores

  • The S&P 500 was down 0.4 percent as of 9:38 a.m. New York time
  • The Nasdaq 100 index fell 0.5 percent
  • The Dow Jones Industrial Average fell 0.2 percent
  • The Stoxx Europe 600 Index fell 1.2 percent
  • The MSCI global index fell 0.5 percent

coins

  • The Bloomberg Spot Dollar Index is unchanged
  • The euro rose 0.2 percent to $0.9853
  • The British pound was little changed at $1.1269
  • The Japanese yen rose 1.6 percent to 141.70 per dollar

bonds

  • The yield on the 10-year Treasury bond advanced 11 basis points to 3.64 percent
  • Germany’s 10-year bond yield advanced six basis points to 1.95 per cent
  • The UK 10-year bond yield advanced 16 basis points to 3.48 per cent

goods

  • West Texas Intermediate crude rose 3.4 percent to $85.73 a barrel
  • Gold futures rose 0.6 percent to $1,685.80 an ounce