United States bonds extend selloff, yields boost dollar
SINGAPORE: U.S. government bonds extended sharp losses on Wednesday over U.S. tax proposals, boosting the appeal of the dollar as yields spiked and sending many investors fleeing for the sidelines.
European shares fell in early trading after a strong run. The FTSEurofirst 300 (.FTEU3) index of top European shares was down 0.2 percent. It rose 0.9 percent on Tuesday, when it hit its highest intraday level since September 2008. U.S. Treasury prices plunged in response to President Barack Obama's proposal to extend tax cuts that could support economic growth in the short term but raise national debt levels longer term. Debt prices around the world fell in the wake of the U.S. selloff. The yield on 10-year Treasuries rose more than 10 basis points in Asia to 3.25 percent, its highest level since late June and adding to an increase of more than 20 basis points on Tuesday.
"The tax cuts have changed the market's landscape," said Arihiro Nagata, fixed income manager at Sumitomo Mitsui Banking Corp. "A lot of people are now changing their scenarios. Many economists are saying the tax cuts will push up U.S. growth by 0.5 to 1.0 percentage point."
But the cost of the tax cuts would probably swell the U.S. budget deficit, which prompted investors to sell bonds and drive up the risk premiums on U.S. debt. The dollar strength pushed the euro toward important support levels around $1.3200 as the European bloc comes under pressure over high debt levels.
The weaker yen gave Japanese stocks a boost on the prospects of improved earnings for exporters. -Reuters
NEW YORK: TV news anchor Dana Tyler, actors Matthew Gumley, Sebastian Arcelus, Beth Leavel and Amy Spanger ring the closing bell at the New York Stock Exchange at the 87th Annual NYSE Christmas Tree Lighting & Closing Bell at New York Stock Exchange in New York City. -Reuters