US stocks fall as bond yields keep investors nervous
NEW YORK (Reuters) – Stocks in world markets remained on shaky ground on Thursday, with major US stock indexes falling more than 1% in midday trading, as US bond yields crept back toward four-year highs.
Yields climbed after the Bank of England said interest rates probably need to rise sooner, adding to expectations of reduced central-bank monetary stimulus globally.
Treasury bond prices have weakened in the past week and a half as investors adjusted for the likelihood of a stronger US economy and higher inflation, which could lead the Federal Reserve to boost rates more times than previously anticipated.
Also underpinning yields, US congressional leaders on Wednesday reached a two-year budget deal to raise government spending by almost $300 billion.
While the deal was a rare display of bipartisanship that should stave off a government shutdown, it looks set to widen the US federal deficit further and could fan inflation.
The move in yields kept equity investors nervous about higher rates and inflation.
“There are two things on the table that are really driving the concerns,” said Chuck Carlson, the chief executive officer of Horizon Investment Services in Hammond, Indiana. “It’s rising yields and inflation worries. Inflation can really crimp multiples, and that’s something that greatly affects stocks and then interest rates. Price in the attractiveness of alternatives, and that can affect it.”
The Dow Jones Industrial Average fell 414.75 points, or 1.67%, to 24,478.6, the S&P 500 lost 35.22 points, or 1.31%, to 2,646.44, and the Nasdaq Composite dropped 109.53 points, or 1.55%, to 6,942.45.
The pan-European FTSEurofirst 300 index lost 1.89%, and MSCI’s gauge of stocks across the globe shed 1.26%. Emerging-market stocks lost 0.89%.
The recent sell-off, sparked by last Friday’s jump in Treasury yields, sent the VIX index, Wall Street’s “fear gauge,” sharply higher. The index was just below 30 on Thursday, more than twice the levels seen in the past few months.
An improving outlook internationally is adding to pressure on global fixed-income markets. The Bank of England raised its growth forecasts for Britain due to the strong global recovery.
“We’ve got yet another confirmation that a major central bank is wringing its hands over the possibility that economic growth is accelerating beyond current capacity,” said Jim Vogel, an interest-rate strategist at FTN Financial in Memphis, Tennessee.
Benchmark 10-year notes last fell 4/32 in price to yield 2.8457%, from 2.832% late on Wednesday.
European bond yields also rose, lifted by the prospect of increased fiscal spending after Wednesday’s deal for a coalition government in Germany.
Oil prices were down after data showed US crude output had reached record highs and the North Sea’s largest crude pipeline reopened following an outage.
US crude fell 1.72% to $60.73 per barrel, and Brent was last at $64.56, down 1.45% on the day.