Treasury yields held near their highest in a year, while global stocks pulled back from a record as investors weighed how the increase in yields could impact risk assets. The dollar strengthened.
The yield on benchmark 10-year Treasuries dipped to around 1.30% after touching the highest since February 2020. Australian bonds tumbled, following the overnight surge in U.S. yields. Asian equities were broadly lower with stocks in South Korea faring worst. S&P 500 futures retreated after the benchmark set a record Tuesday before closing slightly lower.
Elsewhere, oil slipped back below $60 a barrel in New York amid a deepening energy crisis in the U.S. that has 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:
The Treasury 30-year yield dipped to 2.07%. Australia’s 10-year yield climbed eight basis points to 1.40%.
S&P 500 futures fell 0.3% after the gauge dropped 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 saw the brunt of G-10 losses against the greenback. The offshore yuan dipped 0.1%.
Brent oil fell after reaching a near 13-month high in the wake of freezing temperatures that 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.
In metals, copper retreated from the highest since 2012. 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.