Asia wrap: Bond yield reverberations

Stephen Innes SPI Asset Management

The impact of the surging bond market is reverberating across global markets. The 10-year U.S. Treasury note yield has climbed to 4.479%, marking its highest since October 2007. This rate spike has prompted significant reactions in key stock indices, with the S&P 500 Index experiencing its most substantial percentage decline since March, falling by 1.64%. The Nasdaq, which is more sensitive to interest rate changes, saw an even steeper decline.

The recent shift in the Federal Reserve's tone has left its mark on various segments of the capital markets, and even the oil market rally is getting capped despite the markets being short 3 million barrels in Q4. As we approach the end of this week, the market narrative has reverted to the complex dynamics observed in early August. In addition to rising oil prices, U.S. interest rates have once again approached their recent highs. This trend has traditionally had negative implications for various aspects of the economy and is associated with "risk-off" sentiment, leading to a more risk averse trading environment.

Throughout this year, the U.S. labour market has remained a critical variable in the equation, supporting consumption and fueling concerns about inflation. Indeed, the latest “real-time “ employment data fits into the double trouble zone as it marginally increases the chances that the Federal Reserve might consider hiking interest rates in November. It also reinforces the Fed's message that it intends to avoid rate cuts for as long as possible in 2024, emphasizing a more cautious stance about another inflation upswing.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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