Signs that the Bank of Japan (BoJ) might scale back support for the economy faster than expected sent tremors through debt markets yesterday, while stocks slipped as threats of further US tariffs on China drained risk appetite.
Bond yields climbed after a Reuters report that the BoJ was discussing modifying its huge stimulus programme sent Japan’s 10-year bond yield to a six-month high. The report rekindled anxieties about monetary stimulus easing around the world and piled further pressure on investors already struggling to navigate rising protectionism.
The yield on Europe’s benchmark bond, the German 10-year Bund, hit a one-month high of 0.39 per cent. US 10-year Treasury yields also hit their highest in a month at 2.937 per cent.
The Japanese yen climbed 0.05 per cent to two-week highs against the greenback at 111.34 per dollar.
“It’s all that concern investors have about the move from global quantitative easing to global quantitative tightening. That fear gets stoked when you have reports such as this,” said Rory McPherson, Psigma Investment Management’s head of investment strategy.
The dollar index rose a bit off two-week lows it hit after US President Trump criticised the Federal Reserve's rate hikes and accused the European Union and China of manipulating their currencies.
Beijing said it has no intention of devaluing the yuan to help exports.
Mr Trump’s warnings about excessive interest rate hikes also helped the gap between short and long-term Treasury yields widen. That “steepening” of the yield curve continued yesterday, with yields on 30-year Treasuries more than 0.46 percentage points higher than their two-year counterparts, the biggest gap in nearly a month.
Short-end yields are influenced by US monetary policy, and longer-term government bonds are driven by more by inflation and growth expectations. The yield curve’s flattening, or the shrinking gap between short and long yields, has been seen as a possible sign of an coming recession.
The US President’s new threats to slap duties on all $500 billion of US imports from China triggered sell-offs across global stock markets that hit market-leading technology names, such as Amazon.com Inc, when US markets opened.
The Dow Jones Industrial Average fell 50.4 points, or 0.2 per cent, to 25,007.72, the S&P 500 lost 2.02 points, or 0.07 per cent, to 2,799.81 and the Nasdaq Composite dropped 6.11 points, or 0.08 per cent, to 7,814.09.
Meanwhile, concerns about growth affecting demand for fuel had dented crude prices in early trading, but oil rose again as tensions worsened between Iran and the United States.
US crude rose 0.35 per cent to $68.50 per barrel and Brent was last at $73.52, up 0.62 per cent on the day.