US Treasury yields surge on inflation expectation and stimulus
Currencies and equities remain stable
It was neither the currencies nor the equities but the US Treasury yields that drew the market’s attention in the past week.
The US 10-Year (Yr) Treasury yield rose sharply last week especially at the far-end (10Yr and 30Yr). The 10Yr yield surged 13 basis points (bps) and closed the week at 1.34 per cent. The 30Yr yield closed at 2.13 per cent, up 12 bps for the week.
Rising inflation expectations and hopes for a bigger stimulus in the US led the yields higher. Rising yields took the sheen off gold. Currencies and equities remained relatively stable last week.
LONDON: A strong start for world equities in 2021 after the fastest bear-to-bull market switch last year has prompted market mavens to flag worries about pricey assets, with BofA calling it the mother-of-all asset bubbles .
The torrent of cash sloshing around world markets due to the unprecedented stimulus measures in place to fuel economies coming out of the pandemic-led recession has fed into the euphoric rush to equities, particularly Big Tech.
The US Federal Reserve for instance has been purchasing bonds at a record pace, doubling its balance sheet to nearly $8 trillion in less than a year. During the same period, the five biggest tech stocks have seen their market value double.
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FILE PHOTO: The Federal Reserve Bank of Boston s President and CEO Eric S. Rosengren speaks in New York, April 17, 2013. REUTERS/Keith Bedford
(Reuters) - The $1.9 trillion fiscal relief package lawmakers are considering is appropriately large given the pandemic’s effects on the labor market and policymakers will have time to pull back support as the economy approaches full employment, Boston Federal Reserve Bank President Eric Rosengren said on Friday.
“It is a big fiscal package that is being considered right now - I think it’s appropriately big,” Rosengren said in an interview with Reuters. “I am much less concerned than some commentators about it being a problem of overheating the economy.”
A strong start for world equities in 2021 after the fastest bear-to-bull market switch last year has prompted market mavens to flag worries about pricey assets, with BofA calling it the "mother-of-all asset bubbles".
By Reuters Staff
LONDON (Reuters) -
FILE PHOTO: A Wall Street sign outside the New York Stock Exchange in New York City, New York, U.S., October 2, 2020. REUTERS/Carlo Allegri/File Photo
1/ YIELD JOLT
Higher U.S. Treasury yields have so far done little more than jolt equity markets off record highs. That will change if “real” yields adjusted for inflation take off.
It was last year’s real yield plunge which sent cash flooding into stocks; while expensive, they looked like a good deal compared with real yields of minus 1%.
But big-time government spending plans and prospects of economic reopening have lifted real 30-year Treasury yields to eight-month highs, just 11 basis points shy of 0%. Ten-year real yields are at five-week peaks.