Wall St succumbs to soaring bond yields

Mae Love
October 7, 2018

For a euro-based buyer of Treasuries, the cost to hedge would entail paying the three-month London interbank offered rate for dollars (currently about 2.41 percent), receiving their local Libor (minus 0.35 percent) and the basis (0.39 percent).

Employers have added 190,000 jobs on average over the last three months, and the employment rate fell to its lowest level since December 1969.

The increase in non-farm payrolls slowed in September, likely from Hurricane Florence's impact on restaurant and retail payrolls, but the U.S. Labor Department report also showed a rise in wages that could keep the Federal Reserve on track for more interest rate hikes.

The dollar was steady but lingered near recent highs against the euro and the yen as investors assessed U.S. economic data and Powell's remarks.

The 30-year Treasury bond reached a four-year high of 3.424 per cent, up 7 basis points from late Thursday.

Financials were also aided by signs Italy would cut its budget deficit and lower its debt, easing concerns that had pressured global stock markets.

"A Federal Reserve that is raising rates to prevent the US economy from overheating is constraining the policy options of countries where financial conditions are tightening and trade tensions intensifying".

The yield on the benchmark 10-year note US10YT=RR hit a fresh seven-year high of 3.232 percent overnight following data released the previous day that was seen as increasing the odds a Friday payrolls report would also be stronger than expected.

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BONDS: Bond prices kept falling.

"As I have been saying, two consecutive closes above 3.25% on the benchmark 30-year Treasury means that my statement in July 2016 that we were seeing the low - I said italicized, underlined and in boldface - is now, looking at the charts, thoroughly corroborated", he said. Banks and industrial and energy companies, which have struggled for most of 2018, changed place and finished with strong gains.

The industrials sector rose 0.6 per cent, as Canadian Pacific Railway climbed 2 per cent.

Technology and internet companies and smaller, more USA -focused companies continued to suffer steep losses.

Several major banks will report their third-quarter results late next week as the next round of company earnings gets underway. Intel lost 1.1 percent to $47.63 and Netflix lost 2.78 percent to $353.62.

Even the Nikkei eased 0.3 percent, as rising yields offset the boost to exporters from a weaker yen. At the start of this year they had looked for only 2.1 percent. AEM Holdings, which provides handling solutions to electronics manufacturers, slipped 1.82 per cent to 81 cents, while contract manufacturer Hi-P fell 3.81 per cent to $1.01. Hong Kong's Hang Seng fell 0.2 percent.

For the day, USA crude futures settled at $74.34 per barrel, up 0.001 percent, and Brent settled at $84.16, down 0.50 percent.

Y, which have lagged this year, rose 1.3 percent, on pace for their strongest one-day surge in the past 10 sessions.

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