- US 10-year Treasury yields hit a 16-year high
- Asian and European shares fell 0.5% amid a broader sell-off
- Traders see the odds of a 0.25 bps January Fed hike around 50/50
- The dollar is approaching the 150 yen level, which is seen as a red line for action in Japan
LONDON, Sept 26 (Reuters) – U.S. Treasury yields hit their highest on Tuesday since the initial tremors of the 2007-2008 global financial crisis, as fears that interest rates around the world would be too high for long-dated risk assets and boosted the dollar. 10 months tall.
Asian and European stock benchmarks fell, U.S. stocks began to follow suit, and crude oil prices fell on recent comments by Federal Reserve officials that the U.S. yield curve could be flattening.
The benchmark STOXX index of 600 European shares (.STOXX) fell 0.5%, in line with earlier declines in MSCI’s broadest index of Asia-Pacific shares (.MIAP00000PUS).
The yield on 10-year Treasury notes rose to 4.566%, a 16-year high, while U.S. Treasury bids this week and fears of a U.S. government shutdown all fueled bearish sentiment.
Bond yields, which tend to move inversely to prices and rise when issuer-related risks are perceived to be growing, have risen as a story among euro zone sovereigns that central banks will keep rates on hold for longer.
Germany’s 10-year government bond yield, the euro area’s benchmark, was last little changed at 2.789%, briefly touching a 12-year high of 2.813% in early trade.
The spread between the yield on Italian benchmark 10-year BTP bonds and safe-haven German bonds widened to around 1.86 percentage points (186 basis points), the highest since late May, as Prime Minister Giorgia Meloni prepares a tough 2024 budget.
Fears of shutdown
Minneapolis Fed President Neel Kashkari said additional rate hikes may be necessary given the surprising slowdown in the U.S. economy.
Tensions over the US government debt have intensified this week with efforts by the Republican-controlled House of Representatives to push through steep spending cuts, which are unlikely to become law but could trigger a partial government shutdown by next Sunday.
If Congress can’t fund the new fiscal year that begins Oct. 1, millions of federal workers will be laid off and public services could be shut down.
Traders are now putting the odds of another quarter-point Fed hike by January in the currency toss, pushing the start of rate cuts to the summer.
Chicago Fed President Austin Goulsbee said on Monday that inflation staying above the central bank’s 2% target is a bigger risk than tighter central bank policy slowing the economy beyond demand.
The European Central Bank and the Bank of England have raised rates to the highest levels since mid-month at policy meetings.
A red alert for yen intervention
The U.S. dollar index — which measures the currency against six major developed market peers, including the euro and yen — rose 0.2% to 106.2, its highest since November 2022, as the world’s biggest economy continued to perform well.
The greenback’s strength against the yen, in particular, has traders on alert for intervention to prop up the Japanese currency, especially after Finance Minister Shunichi Suzuki said on Tuesday that no options were off the table.
The dollar was near an 11-month high of 148.97 yen overnight, with financial markets seeing 150 per dollar as a red line that could prompt Japanese authorities to act as they did last year.
Gold eased slightly to $1,910.6, extending last week’s decline above $1,947, as gold’s appeal faded in the shadow of a steamroller dollar.
Crude oil remained weak amid concerns that major central banks will keep interest rates high for a longer period of time amid concerns that fuel demand will slow, with supplies expected to remain tight.
Brent crude was down 72 cents at $92.57 a barrel, while U.S. West Texas Intermediate crude futures were down 69 cents at $89.99.
Reporting by Lawrence White and Kevin Buckland Editing by Sri Navaratnam, Kim Coghill, Sharon Singleton and Alex Richardson
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