Bonds mixed as rate hikes loom; futures decline
BONDS were mixed, while US equity index futures fell as investors braced for the biggest rate hike from the Federal Reserve since 2000 and a wave of policy tightening by other central banks.
The US 10-year yield held near 3 percent after hitting the milestone on Monday. Germany’s benchmark rate rose above 1 percent for the first time since 2015, before reversing slightly, while the corresponding yield on UK bonds climbed above 2 percent earlier on Tuesday. Australian bonds slid after the nation’s central bank increased borrowing costs by more than many had expected.
Contracts on US benchmarks slipped, with bank stocks mostly lower in premarket trading as German prosecutors raided the Frankfurt offices of Morgan Stanley. European stocks gave up earlier gains as investors shifted their attention to the monetary policy outlook.
Markets are getting whipsawed between concerns around persistent inflationary spirals and risks to global growth from rising yields, China’s Covid lockdowns and Russia’s war in Ukraine. The Fed’s plans to raise rates and reduce its balance sheet have ended an era of cheap money and forced money managers to reassess valuations.
“The right strategy right now is to position for inf lation—a clear and present fact—rather than recession, which is still only a possibility,” Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, wrote in a note.
German yield surges to a 2015 high as traders bet on faster ECB rate hikes
In Australia, the three-year yield topped 3 percent for the first time since 2014 after the Reserve Bank increased interest rates by more than economists anticipated and signaled further hikes to come.
Next up is the Federal Reserve on Wednesday. The UK is expected to raise borrowing costs a day later.
European stocks struggled to hold onto gains after Monday’s flash crash, which had sent shares across the continent tumbling after a sudden 8 percent decline in Swedish stocks. Citigroup Inc. said its London trading desk was behind the anomalous move. BP Plc. shares climbed after the oil major boosted its share buyback by $2.5 billion as cash flow surged. BNP Paribas SA jumped after reporting gains in both equities and fixed-income trading.
Asian equities were whipsawed by big swings in Alibaba Group Holding Ltd. in Hong Kong on concerns about the status of co-founder Jack Ma. HSBC Holdings Plc shares in Hong Kong rose after it emerged late Friday that the bank’s largest active investor would support a breakup of the lender on the basis that a separate Asia-listed unit would create shareholder value.
A gauge of the dollar held at a two-year high, while euro and the pound were little changed. The Bank of England this week is expected to raise interest rates to a 13-year high and clarify plans for selling its government-bond holdings. Markets are wagering on almost four 25-basispoint hikes by the European Central Bank this year.