Stocks extend slide, Dow drops as much as 600 points
- Author: Zachary Reyes Apr 25, 2018,
Apr 25, 2018, 23:48
On Wednesday, the yield on 10-year USA borrowing costs were at 2.975 percent and with oil prices climbing above $75 a barrel for the first time since late 2014, a rise to 3 percent can not be ruled out.
"This is a 35-year trend change in bonds, we think it's just begun", he said in an interview on Bloomberg Television Monday.
Gold fell on Wednesday as the dollar and U.S. Treasury yields jumped on robust U.S. data and signs of an easing in the U.S.
"Treasurys will always be the global driver for markets". Because the ten-year Treasury bond is essentially what it costs to buy money.
News broke early that Iran's oil minister Bijan Zanganeh said there would be no need to extend a pact between the Organization of the Petroleum Exporting Countries and non-OPEC producers if oil prices strengthened, the ministry's official website SHANA reported.
Also, the rising yields are negatively impacting equity sentiment as USA markets extend their retreat.
Stocks sank for the fourth straight day Tuesday, as investors looked past a series of outwardly positive earnings reports and fixated on threats to the nine-year bull market.
"I don't think there's anything magical about 3 percent", said Willie Delwiche, an investment strategist at Baird in Milwaukee.
The dollar rose to 108.65 yen from 107.60 yen.
When rates rise, that will also typically push the local currency higher as money flows from overseas in to take advantage of the higher yield.
Yesterday, the precious metal sold off sharply as US Treasury yields soared alongside the US dollar.
The U.S. Dollar Index was roughly flat after a five-day rally Tuesday, leaving it near its highest level in more than three months. That followed USA frustration with Russian policy in Syria and Ukraine, as well as alleged election interference. The yield on the 10-year Treasury note touched 3 percent in trading early Tuesday.
The general consensus is that yields have moved quite far already.
The new environment is evident in interest rates on government bonds, closely watched by many investors.
"The question of course is how long can this last", said Peter Boockvar, chief investment officer of Bleakley Financial Group, noting that current debt levels for S&P 500 companies outside of banks are at extremely high levels.
German 10-year government-bond yields have risen by 0.2 percentage point this year, while their British and Canadian equivalents are both up by 0.3 percentage point. Bond yield are rising globally too as Europe's economy is strengthening and China and India maintain to register strong growth.
Most in the industry expected the 30-year to end 2018 at or near the 5% level.
However, some others argue that the U.S. Federal Reserve still has lots of room to hike rates, without hurting markets, as they had been so low following the 2008 financial crash. The next key technical level for the 10-year yield is 3.05 percent, which would put the yield at its highest level since 2011. If you hold bonds, they could significantly decline in value.
Rising interest rates pose several problems for stocks in particular.
But the true effect of hitting 3% is more psychological than scientific.
Many market analysts contend the 10-year US Treasury yield could surge to 3.4%.
Despite the long-term supportive underlying structure from higher oil prices, the short-term election drivers and a broadly stronger United States dollars will continue to put downward pressure on the MYR near term, and we could see a test of the critical 3.90 level.