Rising bond yields wreak havoc in marketsBusiness | 26 Feb 2021 5:02 pm
The surge in global yields and a slump in stocks has left bond and equity investors nursing losses and asking whether there is more to come or something to stop the rot, Bloomberg reports.
While many see bond yields continuing to push higher as the global economy reopens and growth recovers, others say they are now close to levels that should entice long-term buyers. A disorderly selloff in bonds or equities could also trigger at least verbal intervention from the Federal Reserve to stop a rout, according to investors.
A bruising session for U.S. shares and Treasuries on Thursday saw benchmark 10-year yields jump above 1.6 percent before pulling back, while tech stocks saw the brunt of equity losses. A poorly received Treasury auction triggered some of the volatility, and traders yanked forward bets on how soon the Fed will be forced to tighten policy.
“Today’s market dynamics look to have been fueled by technical factors and the Fed may want to let the dust settle before it judges whether there is anything really problematic here,” Evercore ISI’s Krishna Guha and Ernie Tedeschi said. “But a change of tone at least seems warranted in our view and possibly more. This could well come in the next 24 hours.”
“On the forward rates front, the fed funds futures market is now pricing in more or less a full hike in 2022 as well as two in 2023, and we think the 2022 expectation will be viewed by the Fed as excessive and potentially starting to become problematic.”