10Y U.S. Treasury yields are pricing in future Fed hikes: Strategist
The rally in equity markets stalled on Wednesday as rising US Treasury yields amid optimism about a faster economic recovery weighed on high valuations..
Estimated 10-year Treasury yields hit annual highs close to pre-pandemic levels as vaccination progress and encouraging economic data begin to draw investor attention to inflation.
10-year Treasury yields, up nearly 40 basis points this year, are up 1.3330% before declining to 1.2838%.
«As for the sell-off in the bond market, things are finally getting serious as real yields rise on rates … on central bank (policy) tightening earlier than expected», – said Arne Petimezas (Arne Petimezas), AFS analyst in Amsterdam. «Risk assets are now vulnerable to rollback».
In the short term, however, investors expect central banks to maintain a loose monetary policy, and a few minutes after the Federal Reserve System (FRS) meeting today Wednesday is expected to strengthen that sentiment..
«Recent remarks from the Fed chairman Jerome Powell and several other Fed officials show the FOMC is very happy with its current policies», – written by UniCredit strategists.
The gap between the yields on 10-year and 2-year US bonds also peaked in nearly three years on the expectation that short-term rates will get nowhere..
In addition to the cold snap in the stock market, gold and the Japanese yen were also hit by rate hikes..
Gold, which is not profitable and last dropped 0.5% on the day, tends to fall on higher yields and hit a two-week low on Wednesday.
Higher yields in the US could attract investment flows from the yen to the dollars. The yen fell to a five-month low against the dollar and lost 2.7% this year.
The euro fell 0.2% to $ 1.2075. The pound sterling, which has grown thanks to the rapid spread of vaccinations in the United Kingdom, most recently fell 0.1% to $ 1.3892. The dollar index is up 0.05%.
Bitcoin, considered by some to be a hedge against inflation, surged to a high of $ 51,300 and last climbed 3.6% after first crossing $ 50,000 on Tuesday. However, analysts warn of the risks of tightening regulation and further volatility in the cryptocurrency market..
The rise in commodity prices was another important factor in inflationary expectations. They received an additional boost from the cold snap in Texas, which halted about a fifth of US oil production and led to higher energy prices..
Brent crude futures rose 0.9% to $ 63.9 a barrel, their highest level in 13 months. US oil futures rose 0.7% to $ 60.45 a barrel. Copper prices have been around their highest level since 2012.
Global mining company Rio Tinto posted higher raw material prices to post its best annualized earnings since 2011 and post record dividends. This led to the company’s shares soaring to a record high..