An accelerating selloff in US government bonds is starting to spread havoc across financial markets, pushing up borrowing costs, weighing on currencies and driving stocks toward a technical correction.
An Asia stock benchmark fell for a third day, taking its decline since a July high to just over 10%. Treasuries extended losses in Asian trading, with yields on 10- and 30-year notes approaching 5%. Europe equity contracts and US stock futures both slipped after the S&P 500 dropped to a four-month low Tuesday.
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The selloff in global debt pushed yields on Japan’s five-year bonds to a decade high. The yen whiplashed in US trading hours after earlier weakening to levels that some traders suspected would trigger intervention support. Taiwan’s central bank will step in to moderate currency moves if needed, the governor told lawmakers, while Bank Indonesia said it’s buying bonds in the market to help steady the rupiah.
So crucial are US interest rates to global markets that investors are having to recalibrate wagers on everything from stocks to currencies as they come to the view that Federal Reserve monetary policy will remain tight for an extended period. A further wave of selling broke out across markets Tuesday after better-than-expected US job openings data reinforced bets the central bank isn’t done raising rates.
The turmoil in bond markets has damped optimism the start of the new month would bring some clarity to the financial world, said Hebe Chen, an analyst at IG Markets Ltd. in Melbourne. “Instead, seemingly unstoppable bond yields and the unclear rate trajectory have significantly intensified the disquieting sentiment.”
Bloomberg’s gauge of dollar strength rose for a third day after climbing to the highest since November on Tuesday, bolstered by surging Treasury yields.
Japan’s top currency official Masato Kanda earlier declined to comment on whether any intervention was conducted on Tuesday when the currency suddenly strengthened from the weakest level in a year. New Zealand’s dollar fell after the central bank kept interest rates unchanged and signaled a subdued growth outlook.
The yield on Chinese investment-grade dollar credit rose to an 11-month high, having climbed more than 100 basis points from May’s low. Spreads, though, remain well within this year’s range. China is in the midst of a week-long holiday.
The number of available job openings in the US rose to 9.61 million in August from less than 9 million the previous month, according to the Bureau of Labour Statistics. The report drove swaps traders to increase wagers on the Fed raising rates in December to greater than 50%.
Atlanta Fed President Raphael Bostic, who doesn’t vote this year, beat the “higher-for-longer” drum Tuesday, saying the central bank needed to keep rates elevated “for a long time.” He forecast a single rate cut for 2024, toward year-end. His comments came after other Fed policymakers who were also hawkish.
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The Fed may not be pivoting from its current stance anytime soon, according to Ben Powell, chief Asia Pacific investment strategist at BlackRock Investment Institute in Singapore.
“We are seeing more and more signs that they might even have more to do,” he said on Bloomberg Television. The tightening in financial market conditions will continue, with many logical negative consequences, Powell said.
The next key data point for the US labor market will be the monthly payrolls print on Friday.
Elsewhere, oil steadied ahead of an OPEC+ review of the global crude market and a weekly update of US stockpiles. Gold was little changed.
Key events this week:
- China has week-long holiday
- Eurozone services and composite PMIs, Wednesday
- ECB President Christine Lagarde gives welcome address at conference, Wednesday
- US ISM services index, Wednesday
- France industrial production, Thursday
- BOE Deputy Governor Ben Broadbent, Riksbank First Deputy Governor Anna Breman participate at panel discussion, Thursday
- US trade, initial jobless claims, Thursday
- San Francisco Fed President Mary Daly speaks at the Economic Club of New York, Thursday
- Germany factory orders, Friday
- US unemployment rate, nonfarm payrolls, Friday
Some of the main moves in markets:
- S&P 500 futures fell 0.2% as of 6:32 a.m. London time. The S&P 500 fell 1.4%
- Nasdaq 100 futures fell 0.3%. The Nasdaq 100 fell 1.8%
- Japan’s Topix index fell 1.8%
- Hong Kong’s Hang Seng Index fell 1%
- Australia’s S&P/ASX 200 Index fell 0.8%
- Euro Stoxx 50 futures fell 0.2%
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0472
- The Japanese yen fell 0.1% to 149.19 per dollar
- The offshore yuan was little changed at 7.3241 per dollar
- The Australian dollar rose 0.2% to $0.6317
- The British pound was little changed at $1.2082
- Bitcoin was little changed at $27 393
- Ether fell 1.1% to $1,638.75
- The yield on 10-year Treasuries advanced four basis points to 4.83%
- Australia’s 10-year yield advanced 12 basis points to 4.66%
- West Texas Intermediate crude fell 0.1% to $89.10 a barrel
- Spot gold was little changed
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