(Bloomberg) — The selloff in US Treasuries extended into a third straight day, with 30-year yields touching 5% for the first time since 2007 and sending global financial markets into a tailspin.
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As conviction grew that US interest rates could rise further from current 22-year highs, 10-year Treasury yields looked set to also hit the key 5% threshold. That pushed the MSCI all-country equity index to a six-month low, while European shares opened 0.5% lower. US index futures fell after the underlying S&P 500 index dropped to a four-month low Tuesday.
The latest leg of the selloff has been fueled by Tuesday’s better-than-expected US job data, as well as a slew of hawkish comments from Federal Reserve officials. Markets are pricing a one-in-three chance of a November hike and see a more than 50% likelihood of a move in December.
The Fed may not pivot 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 added.
Ten-year Treasury yields, the benchmark for the global cost of capital, have risen about 30 basis points this week. Bonds globally have followed suit, with Japan’s five-year borrowing costs rising to a decade high and yields on Chinese investment-grade dollar credit touching an 11-month peak. In Europe, German yields rose about 5 basis points to the highest since 2011.
And the impact of the bond rout has rippled across asset classes. US crude futures slipped back below $89 a barrel, and global currencies buckled under the dollar’s renewed strength. As the greenback rose to a new 10-month high against a basket of Group-of-Ten peers, speculation grew of Japanese intervention to stabilize the yen. Taiwan pledged to step in to moderate currency moves if needed, while Indonesian authorities said they were buying bonds to steady the rupiah.
Key events this week:
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China has week-long holiday
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Eurozone services and composite PMIs, Wednesday
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ECB President Christine Lagarde gives welcome address at conference, Wednesday
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US ISM services index, Wednesday
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France industrial production, Thursday
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BOE Deputy Governor Ben Broadbent, Riksbank First Deputy Governor Anna Breman participate at panel discussion, Thursday
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US trade, initial jobless claims, Thursday
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San Francisco Fed President Mary Daly speaks at the Economic Club of New York, Thursday
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Germany factory orders, Friday
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US unemployment rate, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 0.3% as of 8:16 a.m. London time
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S&P 500 futures fell 0.5%
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Nasdaq 100 futures fell 0.6%
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Futures on the Dow Jones Industrial Average fell 0.4%
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The MSCI Asia Pacific Index fell 1.7%
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The MSCI Emerging Markets Index fell 1.3%
Currencies
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The Bloomberg Dollar Spot Index rose 0.1%
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The euro was little changed at $1.0465
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The Japanese yen was little changed at 149.00 per dollar
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The offshore yuan was little changed at 7.3215 per dollar
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The British pound was little changed at $1.2065
Cryptocurrencies
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Bitcoin rose 0.2% to $27,446.48
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Ether fell 0.8% to $1,643.95
Bonds
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The yield on 10-year Treasuries advanced six basis points to 4.85%
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Germany’s 10-year yield advanced four basis points to 3.01%
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Britain’s 10-year yield advanced five basis points to 4.65%
Commodities
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Brent crude fell 0.6% to $90.35 a barrel
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Spot gold fell 0.2% to $1,819.72 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rob Verdonck, Kevin Kingsbury, Abhishek Vishnoi and Winnie Hsu.
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