Stocks

Surging US bond yields lead global equities to tumble

Reuters NEW YORK/LONDON | Updated on February 26, 2021

The 10-year US Treasury note briefly spiked to yield 1.614 per cent and later traded well above the estimated 1.48 per cent dividend yield of companies in the S&P 500

A jump in benchmark US Treasury yields on Thursday led a gauge of global equity markets to tumble as investors sold the high-flying tech stocks that fuelled Wall Street's rally to record highs and took precautions against the threat of inflation.

Fears of rising consumer prices from ongoing central bank stimulus and its impact on global growth helped drive copper prices to their highest in almost a decade as investors scrambled to buy metals to guard against inflation.

Gold prices fell more than 2 per cent as the surge in Treasury yields and strong US economic data dented demand for the traditional inflation hedge. Higher bond yields have increased the opportunity cost of holding bullion.

The 10-year Treasury note briefly spiked to yield 1.614 per cent and later traded well above the estimated 1.48 per cent dividend yield of companies in the S&P 500, taking some of the shine off of investing in more risky equities.

"Rates matter," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

"There's no capital risk with a 10-year," he said. "You'll get your principle back and all of a sudden it's competitive with stocks."

US stocks tumbled, forcing a decline in European equities that had rallied earlier on a bigger rise than expected in euro zone economic sentiment data for February.

Investors are taking profits in the high-flying tech sector and moving into more conservative bonds with their rising yields, said Jeffrey Carbone, managing partner at Cornerstone Wealth in Huntersville, North Carolina.

"The market is starting to get a bit frothy," Carbone said."The higher the yield on bonds, the more we see this push to move out of stocks."

Apple Inc, Tesla Inc, Amazon.com Inc, NVIDIA Corp and Microsoft Corp were the biggest drags on the S&P 500 and Nasdaq.

MSCI's all-country world index fell 1.42 per cent to 665.81, also pulled down by the big US tech names that make up a large component of the global stock benchmark.

Equity declines were less pronounced in Europe, with the broad pan-regional FTSEurofirst 300 index closing down0.29 per cent to 1,585.48.

On Wall Street, the Dow Jones Industrial Average fell1.76 per cent, the S&P 500 lost 2.45 per cent and the Nasdaq Composite dropped 3.52 per cent, the biggest single-day decline in almost four months for the tech-heavy index.

"There are two clear stories now," said CMC Markets senior analyst Michael Hewson. "You have the concerns about rising yields, and they are continuing to move higher today, and then you have got an economic recovery story, which is helping lift the more moderately valued parts of the market."

Bond traders pushed up a closely watched part of the Treasury yield curve that measures the difference between yields on two- and 10-year notes. The gap, seen as an indicator of economic expectations, widened as much as 132 basis points, the most since late 2016.

Euro zone bond yields also spiked despite the European Central Bank saying it was closely watching their rise.

German 10-year yields are poised for their biggest monthly gain since January 2013. The region's benchmark rose to -0.214 per cent, a high last seen in March when markets crashed.

The 10-year Treasury note was up 14 basis points to yield 1.5286 per cent in late afternoon trade.

The dollar index fell to a seven-week low while the Australian and Canadian dollars both hit three-year high as global growth optimism lifted commodity prices worldwide.

The dollar later rebounded in the latest example of how currency markets have recently taken cues from bonds moving on changing outlooks for economic growth and inflation.

The dollar index rose 0.248 per cent, with the euro down 0.02 per cent to $1.2162. The Japanese yen weakened 0.35 per cent versus the greenback at 106.24 per dollar.

Three-month copper on the London Metal Exchange climbed 1.6 per cent to $9,457 a tonne, about 6 per cent below its record high of $10,190 a tonne hit in February 2011.

Oil prices held near 13-month highs, with profit-taking limited by the Federal Reserve's assurance that US interest rates will stay low and a sharp drop in US crude output last week due to the winter storm in Texas.

Brent crude futures settled up 31 cents at $63.53 a barrel. US crude futures fell 16 cents to settle at $66.88 a barrel.

US gold futures settled down 1.3 per cent to $1,775.40 an ounce. Spot gold touched a one week low of $1,765.06.

Published on February 26, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like