Treasury yields held near their highest in a year on Wednesday, while European stocks slipped as investors assessed the bond selloff and a busy day for earnings.
The Stoxx 600 Index dropped for a second day, weighed down by retailers, despite some positive corporate news. Akzo Nobel NV rises after beating estimates and announcing plans to repurchase 1 billion euros ($1.2 billion) in shares over the next year, while Rio Tinto Group reported a 20% jump in annual profit on a surge in iron ore prices.
S&P 500 futures were flat, while the yield on benchmark 10-year Treasuries dipped to around 1.30% after touching the highest since February 2020. The three-month implied volatility on 10-year swap rates jumped, signalling that US Treasuries are in for more wild gyrations. The dollar strengthened.
The dramatic rise in bond yields has investors wondering afresh how high they can climb before spoiling the risk rally. Speculative euphoria in assets like Bitcoin and positive sentiment readings have some strategists calling for a pause. A 10% pullback in US shares is plausible given “ebullient sentiment readings, stretched valuation levels and slipping earnings revision momentum,” according to Tobias Levkovich, Citigroup Inc.’s chief US equity strategist.
“The market is fairly frothy here from a sentiment perspective,” Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., said on Bloomberg TV. “You have to put a move higher in yields that goes out of the comfort zone as a potential risk associated with that.”
Elsewhere, oil fluctuated around $60 a barrel in New York amid a deepening energy crisis in the US Bitcoin climbed back above the $50,000 level. China remains shut for a week-long holiday and will reopen
Futures on the S&P 500 Index dropped 0.1% as of 8:25 am London time and the Stoxx Europe 600 Index sinks 0.5%.
While the MSCI Asia Pacific Index climbed 0.1%, the MSCI Emerging Market Index gained as much as 0.4%.
The Bloomberg Dollar Spot Index advanced 0.2% and the euro decreased by around 0.2% to $1.2081.
While the British pound dipped 0.1% to $1.3889, the onshore yuan weakened 0.4% to 6.458 per dollar. The Japanese yen strengthened 0.1% to 105.97 per dollar.
The yield on 10-year Treasuries declined two basis points to 1.30% and the yield on two-year Treasuries declined less than one basis point to 0.12%.
While Germany’s 10-year yield increased less than one basis point to -0.34%, Britain’s 10-year yield declined one basis point to 0.614%. Japan’s 10-year yield climbed one basis point to 0.099%.
West Texas Intermediate crude increased 0.5% to $60.38 a barrel and Brent crude gained 0.7% to $63.81 a barrel. Gold weakened 0.5% to $1,784.91 an ounce.