©Reuters. FILE PHOTO: A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying charts (top) of the Nikkei index outside a brokerage house in Tokyo, Japan, on March 10, 2022. REUTERS/Kim Kyung Hoon
By Sujata Rao and Alun John
LONDON (Reuters) – U.S. Treasury yields fell from multi-year highs on Thursday and stocks showed signs of stabilizing after Federal Reserve minutes released the day before failed to help boost the rise in rates that had already been discounted in the markets.
Ten-year Treasury yields, the benchmark for global borrowing costs, have risen around 20 basis points this month, adding to a 50bp rise in March. Shorter-maturity yields, which are more sensitive to interest rate expectations, have risen further.
Those moves, fueled by expectations of faster policy tightening by the Federal Reserve and other central banks, have weighed on stock markets, pushing the MSCI global stock index up 7% this year. while the US tech benchmark Nasdaq has lost more than 11%.
Asian stocks earlier on Thursday followed the lead of the Wall Street sell-off and fell to one-week lows, while the index fell 1.7%.
But markets gradually stabilized with a pan-European stock index up 0.4%, while Nasdaq futures, down 2.4% on Wednesday, were up 0.3% by 0730 GMT.
Minutes from the Fed’s March 15-16 meeting revealed concerns that inflation had widened in the economy and suggested that its balance sheet reduction could start next month.
But comments earlier this week from Fed Governor Lael Brainard had already cemented expectations for a faster stimulus withdrawal.
“(Fed Chairman Jerome) Powell had already put 50 bps on the table for the next meeting, then we had Brainard’s speech, so there were no additional surprises in the minutes,” said Thomas Costerg, senior economist at Pictet Wealth Management.
He said, however, that the markets would remain on tenterhooks and attentive to data such as the inflation figures for March, which is expected next week at 8.3%.
“The question is to what extent the Fed will be willing to kill growth. My fear is that (they) are not as sensitive to weak growth as expected.”
Chart: FOOD & STOCKS- https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoqxkavr/Pasted%20image%201649296859647.png
Ten-year Treasury yields fell 4.5 basis points to 2.564%, shrinking from a three-year high of around 2.66% hit on Wednesday. The yield on the 2-year note fell more than 5 bps to 2.43%
The gap between the two-year and 10-year segments was the widest in a week, reversing the inversion seen as a recession signal.
With the Fed leading the policy tightening push among major central banks, the dollar held near two-year highs against a basket of currencies, although it fell back from an overnight high of 99.778.
The US economic and interest rate outlook diverges somewhat from that of other major economies.
The euro was near a one-month low, pressured by what ING analysts called a “double threat” from the economic impact of new sanctions on Russia and uncertainty over the outcome of the French election. [FRX/]
France votes in the first round of presidential elections on Sunday and while incumbent Emmanuel Macron is likely to retake the presidency, his far-right opponent Marine Le Pen has been closing the gap, recent opinion polls show.
With his policies increasing France’s fiscal deficit, the premium investors demand to hold French government bonds over German debt has risen to 55.3 bps, the highest level since 2020. French 10-year yields hit their highest levels since 2015 on Wednesday.
Chart: France’s 10-year bond yield is highest since 2015- https://fingfx.thomsonreuters.com/gfx/mkt/znvneqoxepl/FR0704.PNG
French shares rose 0.4% on Thursday after sharp declines earlier this week.
“If France elects a populist and inexperienced president, who has in the past shown sympathy for Russian President Vladimir Putin, France and the EU would face a huge surprise almost comparable to Donald Trump’s surprise victory in the 2016 US election,” Berenberg analysts. wrote.
Le Pen’s agenda of protectionism, reform rollbacks and anti-immigration stance would likely trigger a conflict with the European Union, they warned.
Investors were also concerned about rising economic tensions and new outbreaks of COVID-19 in China. Nomura estimated that this week 23 Chinese cities representing 22% of the country’s GDP have implemented full or partial lockdowns.
Shanghai, under a citywide lockdown, reported nearly 20,000 new cases on April 6.
Chinese blue-chip stocks lost 0.9% and Hong Kong shares lost 1.3%, weighed down by declines in big Chinese tech companies