US yields at 2007 levels send stocks lower while yen siren sounds

  • US 10-year Treasury yields hit 16-year high
  • Asian and European shares fell 0.5% amid widespread selling
  • Traders see around 50/50 chances of a Fed hike of 0.25 bps in January
  • Dollar nears 150 yen level which is seen as Japan’s red line for action

LONDON, Sept 26 (Reuters) – U.S. Treasury yields rose on Tuesday to the highest level not seen since the initial shock of the 2007-2008 global financial crisis, as interest rates for longer-dated risk assets globally fell. The value of the dollar declined due to fears that it would remain high. 10 month high.

Asian and European stock benchmarks declined, with US equities set to follow suit, and crude oil prices declined due to recent comments from Federal Reserve officials, leading to a steepening of the US yield curve.

The benchmark STOXX index of 600 European shares (.STOXX) slipped 0.5%, in line with earlier losses in MSCI’s broadest index of Asia-Pacific shares (.MIAP00000PUS).

Yields on 10-year Treasury notes rose to 4.566%, a 16-year peak, while a heavy pipeline of US Treasury auctions this week and fears of a US government shutdown further stoked the gloomy mood.

Bond yields, which move inversely to prices and rise when issuer-related risks are seen as rising, remain elevated among euro zone sovereigns as the narrative continues that central banks will keep rates high for longer. .

Germany’s 10-year government bond yield, the euro zone benchmark, was last little changed at 2.789%, having hit a 12-year high of 2.813% in early trading.

The gap between yields on the Italian benchmark 10-year BTP bond and the safer German Bund has widened to about 1.86 percentage points (186 basis points), the largest since the end of May, as Prime Minister Giorgia Meloni warns of a tough 2024 Preparing the budget.

Fear of shutdown

Minneapolis Fed President Neel Kashkari said further rate hikes are needed given the surprising resilience of the US economy.

Efforts by the Republican-controlled House of Representatives this week to impose deep spending cuts have heightened jitters over the U.S. government debt, which have no chance of becoming law but could lead to a partial government shutdown as soon as next Sunday.

If Congress is unable to fund the new fiscal year that begins Oct. 1, hundreds of thousands of federal employees could be furloughed and public services suspended.

Traders now anticipate another quarter-point hike by the Fed by January, pushing forward a possible start of rate cuts into the summer.

Chicago Fed President Austin Goolsbee said Monday that inflation staying above the central bank’s 2% target remains a bigger risk than tightening the Fed policy slowing the economy more than necessary.

The European Central Bank and the Bank of England have also advocated higher rates for a longer period of time in policy meetings since the middle of the month.

Red alert for yen intervention

The US dollar index – which measures the currency against six major developed market peers including the euro and yen – rose 0.2% to 106.2, the highest since November 2022, as the world’s largest economy continued to outperform. .

The greenback’s strength against the yen, in particular, has kept traders alert for intervention to boost the Japanese currency, especially after Finance Minister Shunichi Suzuki said on Tuesday that no option was off the table.

The dollar remained close to an 11-month peak of 148.97 yen overnight, with financial markets viewing 150 per dollar as a red line that would prompt Japanese authorities to take action, as they did last year.

Gold fell slightly to $1,910.6, extending last week’s slide from $1,947 as bullion’s appeal diminished in the shadow of a steamroller dollar.

Crude oil remains weak amid concerns that major central banks keeping interest rates high for a longer period will reduce fuel demand, even as supplies are expected to tighten.

Brent crude futures were down 72 cents at $92.57 a barrel, while US West Texas Intermediate crude futures were down 69 cents at $89.99.

Reporting by Lawrence White and Kevin Buckland Editing by Sri Navaratnam, Kim Coghill, Sharon Singleton and Alex Richardson

Our Standards: The Thomson Reuters Trust Principles.

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