A sell-off in US Treasuries pushed yields to multi-year peaks yesterday as robust economic data and hawkish speeches by Federal Reserve officials stoked concerns about inflation, weighing on stock markets globally.
The yield on the benchmark 10-year note hit a high of 3.232 per cent following data released the previous day that was seen as increasing the odds a payrolls report due today would also be stronger than expected.
Stocks, in turn, have fallen broadly. The Dow Jones Industrial Average fell 212.4 points, or 0.79 per cent, to 26,615.99, the S&P 500 lost 20.51 points, or 0.70 per cent, to 2,905 and the Nasdaq Composite dropped 108.74 points, or 1.35 per cent, to 7,916.35.
The pan-European FTSEurofirst 300 index lost 0.99 per cent and MSCI's gauge of stocks across the globe gained 0.02 per cent.
The surge in Treasury yields has also prompted a rise in government bond yields across the globe.
"We saw very large overnight volumes during both the Tokyo and London trading hours, which was a catch-up in foreign sovereign markets to the very large sell-off in US Treasuries yesterday," said Jon Hill, US rates strategist at BMO Capital Markets.
Eurozone bond yields rose sharply, tracking their US counterparts, while the ‘trans-Atlantic spread’ between United States and German 10-year bond yields hit a three-decade high of around 275 bps. The US dollar weakened against the euro but lingered near recent 11-month highs as investors digested US economic data and Powell's remarks.
The dollar index fell 0.06 per cent, with the euro up 0.28 per cent to $1.1508.
The exception of the day was Italy, where borrowing costs dropped for a second day after the government said it would cut budget deficit targets from 2020 and reduce its debt over the next three years.
Prime Minister Giuseppe Conte on Wednesday confirmed a deficit target of 2.4 per cent of gross domestic product in 2019 and said it would fall to 2.1 per cent in 2020 and 1.8 per cent in 2021.
The estimates for 2020 and 2021 were lower than those initially reported, bringing further relief to bond markets rattled by the new government's plans to ramp up spending.
Oil slipped but held near four-year highs, supported by the imminent loss of Iranian supply through US sanctions, but also tempered by the prospect of a rapid production increase from Saudi Arabia and Russia.
Brent crude futures fell 64 cents to $85.65 a barrel, a 0.7 per cent loss, by 11:44 a.m. EDT, having risen to a late 2014 high of $86.74 on Wednesday.
West Texas Intermediate (WTI) crude futures fell 93 cents to $75.48 a barrel, a 1.2 per cent loss.