(Bloomberg) — Global bonds attempted to recover from an aggressive selloff that drove steep losses in Treasuries and U.S. stocks Thursday. Asian shares slumped and U.S. and European futures pointed lower.
Benchmark Treasury yields fell back below 1.5% after trading as high as 1.6% Thursday, when a poorly received government auction led to forced selling by holders of mortgage securities. Their Australian equivalents swung amid an unscheduled purchase operation from the country’s central bank, though a mid-session bond rally faded as the day progressed. Japan’s benchmark hovered near its highest level since early 2016. The dollar extended overnight gains.
Stocks dropped more than 3% in Japan and Hong Kong, and were weaker across the region. S&P 500 futures slipped after the benchmark closed down 2.5% with tech shares leading losses. The Nasdaq 100 tumbled 3.6%, the most since October, as investors rotated into companies poised to benefit from an end to lockdowns. Still, stocks popular with the day-trader crowd surged once again, with GameStop Corp. doubling at one point before ending 19% higher.
Investors are betting on a sharper-than-expected rebound for the global economy, with some growing increasingly worried that accelerating inflation could trigger a pullback in monetary policy support. Federal Reserve officials so far say surging Treasury yields reflect optimism and have stressed that the central bank has no plans to tighten policy prematurely.
What Investors Are Watching After the Spike in Treasury Yields
“A move of this magnitude is not healthy for markets and equities are rightfully acting negatively to it,” said Matthew Miskin, the co-chief investment strategist at John Hancock Investment Management. “We will be watching to see if the Fed pushes back more meaningfully on the recent rise in yields.”
The 10-year U.S. yield adjusted for inflation rose to its highest level since June, a warning sign for riskier assets that have benefited from exceptionally loose financial conditions amid the pandemic.
In remarks this week, Federal Reserve Chairman Jerome Powell offered reassurance that policy would continue to be supportive and look beyond a temporary pick-up in inflation, especially from a low base. Nevertheless, money-market traders have now almost fully priced in a first rate hike by the end of next year.
Read more: Soaring U.S. Yields Send Risk Assets Warning as Real Rates Rise
Elsewhere, oil retreated from its the highest in more than a year as traders mulled depleting global inventories. Bitcoin traded below $50,000 again. Gold extended an overnight decline.
Some key events to watch this week:
Finance ministers and central bankers from the Group of 20 will meet virtually Friday. U.S. Treasury Secretary Janet Yellen will be among the attendees.
These are some of the main moves in markets:
Stocks
S&P 500 futures fell 0.4% as of 7:03 a.m. in London. The S&P 500 Index fell 2.5%.Japan’s Topix Index fell 3.2%.S&P/ASX 200 fell 2.4%.South Korea’s Kospi Index fell 2.9%.Hang Seng Index fell 3.2%.Shanghai Composite Index fell 2.1%.
Currencies
The Bloomberg Dollar Spot Index rose 0.2% after gaining 0.6% Thursday.The euro was 0.2% lower at $1.2150.The British pound fell 0.6% to $1.3934.The Japanese yen was flat at 106.19 per dollar.The offshore yuan rose 0.2% to 6.4786 per dollar.
Bonds
The yield on 10-year Treasuries slipped four basis points to 1.48%.Australia’s 10-year yield was up 18 basis points at 1.92%.
Commodities
West Texas Intermediate crude fell 1.5% to $62.60 a barrel.Gold fell 0.5% to $1,761 an ounce.
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