The yield on 10-year U.S. Treasuries rose to 4% on Wednesday as traders sold government debt in anticipation of a longer period of higher interest rates.
The rise took the yield to its highest level since November. At the end of last year, yields were trading at levels not seen more than a decade ago.
The yield on the 10-year note rose 7 basis points to 4%, while the yield on the two-year note rose 7 basis points to 4.89%, building on a 16-year high hit. Tuesday.
move in Treasury Markets left the yield curve in its steepest inversion in 42 years. An inverted yield curve, in which yields on short-term bonds are higher than those on longer-term bonds, is often seen as a harbinger of a recession.
Markets were driven by interest rate outlook as the US Federal Reserve increased borrowing costs to fight inflation. Futures markets reported on Wednesday that the Fed’s key interest rate would peak at around 5.5% in September, up from the current range of 4.5-4.75%.
Expectations have changed dramatically over the past month following the release of warmer than expected US economic data. In early February, investors expected rates to peak at just under 5% in the second quarter.
“Everyone is looking at the data and coming to think that inflation is likely to continue and growth could be firm. There is uncertainty about the end of Fed policy,” said Robert Tipp, strategist Chief Investment Officer at PGIM.
“The view has been developing in the markets, with a lot of movement over the past five days,” he said.
Fixed income moves came as US equities fell. The blue-chip S&P 500 index was down 0.4% and the tech-heavy Nasdaq fell 0.5% in New York afternoon after the monthly CEO Index was released. purchase of the Institute for Supply Management.
The index rose to 47.7 in February, below analysts’ forecasts, but the report said optimism for manufacturing activity was on the rise and rebounded from January.
Investor concerns that global central banks would be forced to maintain higher interest rates were heightened by Germany inflation datathe largest economy in the euro zone.
German consumer prices rose 9.3% year-on-year in February, against forecasts of 9.1%, echoing similar unexpected increases in Spanish and French data earlier in the week.
German bonds sold off, with the yield on 10-year Bunds hitting 2.73%, its highest level since July 2011.
The European regional Stoxx 600 index closed down 0.8%, the German Dax fell 0.4% and the French Cac 40 fell 0.5%. The FTSE 100 rose 0.5%.
“German inflation impressions have pivoted the narrative from optimistic growth to persistently high inflation,” said Laura Cooper, senior macro-investment strategist at BlackRock’s iShares Emea.
Asian stocks rallied on Wednesday as strong data from China’s manufacturing sector lifted investor sentiment after trading moderated the day before. Hong Kong’s Hang Seng index closed up 4.2% and China’s CSI 300 rose 1.4%.
Figures show that China’s manufacturing sector extended at its fastest pace in more than a decade, in an unequivocal signal that its economy is rebounding after the lifting of the government’s strict zero-Covid policy.
According to China’s National Bureau of Statistics, the official manufacturing purchasing managers’ index was 52.6 last month, up from 50.1 in January and above economists’ expectations of 50.5. . The reading was at its highest level since April 2012.
The dollar fell 0.4% against a basket of six peers, while the euro rose 0.7%. The pound fluctuated after Bank of England Governor Andrew Bailey suggested markets were wrong to believe many more rate hikes would be needed to bring inflation under control.