Treasury yields surged to the highest in a year, while U.S. stocks pulled back from records as investors weighed how the increase in yields could impact risk assets. Asian stocks looked set to slip.
The yield on benchmark 10-year Treasuries surged to 1.31%, the highest since February 2020, and Australian bonds tumbled, helping global bonds extend their worst start to a year since 2013. The dollar strengthened. The S&P 500 and Nasdaq Composite indexes all set records Tuesday, before closing slightly lower. Shares opened down in Australia, while equity futures dipped in Japan and Hong Kong.
Elsewhere, oil held above $60 a barrel in New York while gasoline futures surged as a deepening energy crisis in the U.S. crippled the petroleum industry. China remains shut for a week-long holiday and will reopen Thursday. Bitcoin broke through $50,000 for the first time before falling back.
The so-called reflation trade is powering assets tied to economic growth and price rises, including commodities and cyclical stocks, and pushing bond yields higher. Investors are also riding a wave of speculative euphoria from penny stocks to Bitcoin amid abundant policy support. But some are questioning whether the jump in yields could eventually weigh on riskier assets.
“The market is fairly frothy here from a sentiment perspective,” Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., said on Bloomberg TV. “You have to put a move higher in yields that goes out of the comfort zone as a potential risk associated with that.”
Here’s a look at how it’s playing out in global markets:
German bunds and UK. gilts both saw benchmark yields rise. The Treasury 30-year equivalent pushed above 2%. Australia’s 10-year yield climbed 10 basis points to 1.42%.
S&P 500 futures were little changed after the gauge fell 0.1% on Tuesday, paring this year’s advance to 4.7%. The Russell 2000, which has surged 15% this year, edged lower.
The dollar strengthened against most of its major peers. The kiwi edged lower to 71.86 U.S. cents.
Brent oil is holding near a 13-month high after freezing temperatures crippled the Texas power system and disrupted crude production. Nearly 5 million people across the U.S were plunged into darkness as homes and businesses lost power. Natural gas futures for March delivery surged as much as 10%.
In metals, copper climbed to the highest since 2012 and tin extended a dramatic surge. Citigroup Inc. forecasts copper prices will rally to $10,000 a ton in six to 12 months on a better-than-expected recovery in demand, most notably outside China.
Here are some key events coming up:
- Earnings roll on with companies including, Daimler, Credit Suisse, Deere, Danone and Nestle.
- Federal Open Market Committee minutes from the January meeting are due Wednesday.
- U.S. retail sales figures come on Wednesday.