According to Bloomberg News, the intense surge in US Treasury yield has continued to impact the global markets Monday, right at the beginning of a week for all the inflation watchers.
The ten-year yields escalated to 2.75% for the first time since March 2019 as the investors were in a decisive mode about their investments due to the Federal Reserve’s tightening plan and surging inflation. Due to this move, the greenback was pushed higher, the yen to the 125/dollar mark, and wiped off the long premium benchmark Chinese bonds were holding over the United States counterparts that were more than a decade long. Most of the stocks were found plunging.
Global investors are still in the process of adjusting while the Fed is increasingly hawkish. In the last week, the Fed added proposals for quantitative tightening to its overall plan for a faster rise in interest rates to tame rising inflation. This has led to a threat of removing a key support for global risk assets, which are already reeling under pressure from the chances of the central bank action that could give rise to a recession in the United States.
The real problem
The bond selloff impacts stocks since the high-priced technology shares face pressure as a surge in the real yields is threatening valuations. The benchmark inflation-adjusted yield escalated by about six basis points to minus 0.125% on Monday, which is not very far off a break into the territory of positivity for the first time in the last two years.
Bloomberg News reports that this has led to moving away into defensive names from the riskier territory of the market. In the last week, the US healthcare stocks rose to an all-time high, and speculative funds were seen building up on record bets against the shares of the emerging markets.
In other places, the yield between the Treasuries and the Chinese 10-year bonds dropped to negative 0.20 points, which is the lowest since June 2010. The gradually fading premium, which comes as Beijing clings on to its easing mode, unlike policymakers across the Pacific regions, is likely to reduce the Chinese assets, including the yuan.
Bloomberg News reports that in the meantime, the Chinese stocks dropped due to the increasing concern over an outbreak of Covid at home, and the surge in the yields only adds to the regulatory headwinds that are nothing but persistent.
The key for this week in the global markets is the US consumer price data, as the ongoing Ukrainian war, which has entered its seventh week, magnifies the price pressures. Economists are anticipating an 8.4% profit in March’s index compared to one year earlier, which is a four-decade rise.
As per strategist at Modular Asset Management, Wai Ho Leong, there will be another round of testing of the nerves, with increasing growth concerns, higher inflation, disruptions in the supply chain, and a growing aggressive Fed.
