Government Bond Yields Climb, Oil Rises Again, and Stocks Dip on Market Jitters
Market Overview and Key Developments
By Chibuike Oguh
Global Market Movements
NEW YORK, Sept 15 (Reuters) - U.S. Treasury yields hit their highest level since 2007 and oil prices rose on Tuesday, weighing down global stocks, which extended a selloff from the day's previous session.
Yields on benchmark U.S. government debt have marched steadily higher over the past month due to growing concerns among investors about higher inflation and more broadly, the country's long-term fiscal outlook. Yields in Germany also hit their highest since 2009.
Federal Reserve and Interest Rate Expectations
The U.S. Federal Reserve is expected to raise rates by at least a quarter point, even though Fed Chair Kevin Warsh has been reluctant to provide guidance on the future path of rates.
Expert Commentary
"There should be zero shock factor in the fact that we've had an exuberant economic backdrop, we had earnings growth that just hit 30% last quarter and we have a geopolitical conflict that's driving up commodity prices," said Edison Byzyka, chief investment officer at Credent Wealth Management.
"I think the Fed needs to absolutely raise rates tomorrow. If the Fed does not raise rates by at least a quarter of a (percentage) point, we're going to see the bond market just punish the Treasury market."
Stock Market Performance
All three main indexes on Wall Street finished lower, led by losses in consumer discretionary, communication services and utilities stocks. Energy shares were the biggest gainers.
The Dow Jones Industrial Average fell 0.63%, the S&P 500 lost 0.45%, and the Nasdaq Composite dropped 0.78%.
Europe's STOXX 600 fell 0.28% after hitting its lowest level since June 12.
MSCI's main world stocks index <.MIWD00000PUS> was down 0.5%.
Oil and Energy Markets
Benchmark Brent crude futures settled above $108 per barrel as Yemen's Iran-aligned Houthis launched a new wave of attacks on Saudi Arabia and were digging into positions on the western coast of Yemen along the Red Sea.
Oil prices have also been steadily rising, along with key fuel markets like gasoline and diesel. Energy supplies have been restricted since the U.S. and Israel launched joint strikes against Iran in late February, spurring that nation to blockade the crucial Strait of Hormuz. The recent Houthi attacks have further impaired the flow of energy out of the Middle East.
Interest Rates and Currency Movements
Interest Rates in Focus
U.S. 10-year Treasury yields hit peaks not seen since 2007 ahead of the Fed's rate decision on Wednesday. The yield on benchmark U.S. 10-year notes rose 4.5 basis points to 5%.
German Bund yields, the euro area's benchmark, rose to their highest level in over 17 years at 3.56%.
Central Bank Actions
The Bank of Japan is widely expected to raise its interest rate by 25 bps to 1.25% at the end of its two-day meeting on Friday, and signal more tightening ahead. Policymakers are seeking to shore up the yen after intervention helped steer the currency away from a 40-year low.
Currency and Commodity Updates
The dollar gained against peers ahead of the potential Fed rate increase.
The dollar strengthened 0.49% to 155.11 against the Japanese yen. The European single currency edged down 0.07% against the dollar at $1.1539.
The dollar index, which measures the greenback against a basket of currencies, rose 0.16% to 99.65.
Spot gold fell 0.06% to $4,295.52 an ounce.
(Reporting by Chibuike Oguh in New York; editing by Rod Nickel, Aurora Ellis and David Gaffen)
