Wall Street equities closed at the lowest level since December 2020, while US Treasury yields lurched higher after intense volatility in Britain’s gilt market and a lacklustre sale of new Treasuries shook investor sentiment.
The blue-chip S&P 500 share index ended the day down 1 per cent, after having lost 4.7 per cent over the course of the previous week. The technology-heavy Nasdaq Composite fell 0.6 per cent on Monday.
Monday’s wobble in equities came as the yield on the 10-year US Treasury note, a benchmark for global borrowing costs, added 0.22 percentage points to 3.92 per cent — the highest level since 2010. Bond yields rise when prices fall.
The selling in the US followed a brutal session in London, in which gilt yields surged for the second trading day in a row after the UK government’s plans for big tax cuts spooked investors. Britain’s 10-year gilt yield rose on Monday by its most in 40 years, according to Refinitiv data.
A sale of US two-year Treasuries on Monday also highlighted how fund managers are demanding the government pay higher borrowing costs on expectations the Federal Reserve will continue pushing interest rates sharply higher.
The difference in yield between what investors anticipated ahead of the auction, and the actual result, was the highest since the market ructions in 2020, according to Thomas Simons, money market economist at Jefferies. The debt was also issued with the highest yield of any two-year auction since 2007 at 4.29 per cent per cent, Simons said.
“On the one hand, the yield appears to present compelling value . . . but this crazy volatility is hard to stomach,” he added.
Last week, the Fed led the charge on a series of interest rate rises by other global peers, implementing a third consecutive increase of 0.75 percentage points to a target range of 3 to 3.25 per cent.
The dollar, which tends to strengthen in times of economic and market stress, added 0.8 per cent against a basket of six peers, hitting a fresh 20-year high.
European corporate bond markets also reflected concerns about the effect of rapidly rising interest rates. Borrowing costs for high-yield European issuers hit their highest level since the start of the coronavirus pandemic in March 2020 at 7.5 per cent, according to the ICE BofA Euro High Yield index.
Oil prices also declined on Monday, with international benchmark Brent crude settling down 2.4 per cent to $84.06, its lowest level since January.
The region-wide Stoxx Europe 600 share index swung between positive and negative territory during the day before finishing down 0.4 per cent. The regional gauge had closed Friday’s session in “bear market” territory — typically defined as a decline of 20 per cent or more from a recent peak. The FTSE 100 finished flat.
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