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Saturday, March 2, 2024

Financial turmoil deepens as US 30-year yield hits 5%

The US Treasury selloff continued for a third consecutive day, with 30-year yields hitting 5% for the first time since 2007, causing global financial markets to tumble. As the belief grew that US interest rates might rise further from their current 22-year highs, 10-year Treasury yields also moved closer to the critical 5% level. This development led to the MSCI all-country equity index declining for a fourth consecutive day, reaching its lowest point since May.

European stocks initially dropped but later stabilized, trading relatively unchanged, while US index futures showed slight declines after the S&P 500 index fell to a four-month low.

The recent selloff has been driven by better-than-expected US job data and a series of hawkish remarks from Federal Reserve officials. The markets are now pricing in a one-in-three chance of a rate hike in November and a more than 50% likelihood of a move in December.

Guillermo Hernandez Sampere, head of trading at asset manager MPPM, explained, “The bond selloff was triggered after peak rate hopes vanished into thin air for the moment. The fear of higher yields in the future has forced investors to sell, and—no surprise—the crowd runs toward a small door.”

Ten-year Treasury yields, serving as a benchmark for global capital costs, have increased by approximately 30 basis points. This trend has extended to bonds worldwide, with Japan’s five-year borrowing costs reaching a decade high and yields on Chinese investment-grade dollar credit reaching an 11-month peak. In Europe, German yields also rose by about 5 basis points, reaching levels not seen since 2011.

The repercussions of the bond selloff have reverberated across various asset classes, leading to a decline in US crude futures below $89 a barrel and putting pressure on global currencies due to the renewed strength of the US dollar.

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