LONDON (Reuters) – On Friday, US bond yields topped the 14-month highs reached the previous day as markets expected a US economic recovery, while oil stabilized after a 7% drop.
Bond markets have seen strong moves this week as the US Federal Reserve said it expected higher economic growth and inflation in the US this year, though it repeated its promise to keep its target interest rate close to zero.
Yields on US 10-year bonds, which move inversely in price and have been rising for the past seven weeks due to growth expectations, soared to their highest level since January 2020 at 1,754% on Thursday. They were last at 1.6838%.
Long-term German government bond yields fell in line with US yields.
“All the men and their dogs are watching the bond yields,” said Giles Coghlan, chief currency analyst at HYCM. “Even though (Fed Chairman Jerome) Powell was dovish, bond yields went up, just anticipating that the Fed is behind the curve, the market is pricing the rate hikes.” .
MSCI’s global stocks fell 0.21% from month-long highs in the previous session, although Nasdaq futures were up 0.8% and S&P 500 futures were up 0.4%.
US and oil stocks were hit Thursday by concerns about hesitant vaccine launches and a further slowdown in Europe after France imposed a month-long lockdown on Paris and parts of the north.
French shares fell 0.5%. UK stocks fell 0.7% as energy stocks fell.
After falling 7% on Thursday, Brent crude futures bounced 82 cents to $ 64.09 a barrel. US crude rose 88 cents to $ 60.88.
The oil slide wiped out four weeks of gains in a single session amid concerns that global demand would fall short of high expectations.
The jump in Treasury yields has provided some support for the US dollar.
“Most market participants consider the Fed’s cautious approach to be justified and assume this supports the economic recovery,” Commerzbank analysts said in a note.
“That improves the longer-term economic outlook and therefore justifies higher long-term interest rates, as well as a stronger dollar.”
However, the dollar was little changed on Friday, falling 0.1% to 91.735 against a basket of currencies and holding steady against the euro at $ 1.1922. It fell 0.2% against the underperforming yen to 108.63.
Markets were also disrupted by the Bank of Japan’s (BOJ) decision to slightly widen the target band for 10-year yields and modify its asset purchases.
The bank described the changes as a “nimble” way to make easing more sustainable, although investors appeared to take it as a step back from full stimulus. The decision to limit purchases to only TOPIX-linked ETFs brought the Nikkei down 1.6%.
South Korea lost 1%. Chinese blue chips lost 1.9%, perhaps baffled by a heated exchange between Chinese and American diplomats in the first in-person conversations of the Biden era.
Rising bond yields have weighed on gold, which does not offer a fixed return, and left it down 0.4% at $ 1,743 an ounce.
Additional reporting by Wayne Cole and Elizabeth Dilts Marshall; edited by Shri Navaratnam, Lincoln Feast, Larry King