Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
US Treasuries rallied on Tuesday as investors rushed to haven assets following attacks by Hamas in Israel and comments from Federal Reserve officials who hinted that the US may have reached the end of its rate-rising campaign.
The yield on benchmark 10-year Treasuries dropped 0.18 percentage points to 4.62 per cent on its reopening after a US public holiday, before nudging higher to 4.65 per cent. Yields fall as prices rise.
“There has been a flight to safety as conflict unfolds in the Middle East,” said Andres Sanchez Balcazar, head of global bonds at Pictet. “It’s quite natural that an exogenous shock like this will generate a rally in US Treasuries.”
The rebound in prices comes after relentless pressure on global sovereign debt markets in recent weeks as investors responded to the Fed’s message that interest rates will stay higher for longer. Benchmark US debt yields hit a 16-year high above 4.88 per cent on Friday following stronger than expected jobs data.
The rally also followed moves on European debt markets on Monday, when German Bund yields — the eurozone benchmark — fell 0.11 percentage points, before edging 0.01 percentage points higher to 2.78 per cent on Tuesday.
US government debt was also boosted by comments on Monday and Tuesday from Fed officials, who signalled that the central bank may have finished raising interest rates.
On Tuesday, Atlanta Fed president Raphael Bostic said that US interest rates were sufficiently high to bring inflation back to the central bank’s 2 per cent target.
On Monday, Philip Jefferson, Fed vice chair, and Lorie Logan, Dallas Fed president both suggested that the sharp rise in long-term yields in October could mean less need for further rate increases.
“It seems increasingly likely that the hike from the Fed in July will prove to be the last, although if US growth fails to weaken in the coming months then another hike is definitely not off the table,” said Mike Riddell, a bond fund manager at Allianz Global Investors.
Futures markets now indicate a 14 per cent probability of an interest rate rise at the Fed’s November meeting, down from 31 per cent after Friday’s payroll data.
The retreat of expectations for further rate rises comes as the IMF on Tuesday urged regulators to sharpen their scrutiny of threats from rising bond yields, saying that surging global borrowing costs were creating “heightened risk” in financial markets.
The rally in Treasuries boosted stock markets, which have fallen sharply as rising bond yields dim the relative appeal of equities. Stocks were also lifted by a Bloomberg report that China is considering a fresh round of stimulus measures.
The benchmark S&P 500 was up 0.6 per cent on Tuesday afternoon, while the tech-heavy Nasdaq Composite was up 0.7 per cent. This marked the third day of gains for both indices after they hit multimonth lows last week amid a global sell-off in bonds.
Credit: Source link
