LONDON (Reuters) – U.S. bond yields on Friday exceeded the 14-month highs reached the day before, with markets seeking a US economic recovery, while oil stabilized after a 7% drop.
The bond markets experienced sharp movements this week as the U.S. Federal Reserve said it expects higher economic growth and inflation in the United States this year, although it has repeated its promise to keep its interest rate target close to zero.
Yields on 10-year US banknotes, which move inversely in price and have risen in the past seven weeks with growth expectations, reached their highest level since January 2020 at 1.754% on Thursday. They stood at 1.6838%.
Yields on long-term German government bonds fell in parallel with US yields.
“Every man and his dog is looking at bond yields,” said Giles Coghlan, chief exchange analyst at HYCM. “Even though (Fed Chairman Jerome) Powell was dovish, bond yields went up, purely on the expectation that the Fed is behind the curve – the market is pricing rate hikes.”
Global MSCI shares fell 0.21% from a month-high in the previous session, although Nasdaq futures rose 0.8% and S&P 500 futures rose 0.4%.
Oil and US stocks were hit on Thursday by concerns about faltering vaccine launches and further slowdowns in Europe, after France imposed a month-long blockade in Paris and northern parts.
French shares fell 0.5%. UK stocks fell 0.7% with the fall in energy stocks.
After falling 7% on Thursday, Brent oil futures jumped 82 cents to $ 64.09 a barrel. US crude oil rose 88 cents to $ 60.88.
The oil retreat destroyed four weeks of gains in a single session, amid fears that world demand would fall short of high expectations.
The jump in Treasury yields provided some support for the US dollar.
“Most market participants consider the Fed’s cautious approach to be justified and assume that it supports the economic recovery,” analysts at Commerzbank said in a note.
“This improves the long-term economic outlook and therefore justifies higher long-term interest rates, as well as a stronger dollar.”
The dollar changed little on Friday, however, dropping 0.1% to 91.735 against a basket of currencies and remaining stable against the euro at $ 1.1922. It fell 0.2% on the low-yielding yen at 108.63.
The markets were also uneasy about the Bank of Japan’s (BOJ) decision to slightly widen the target band to 10-year yields and adjust asset purchases.
The bank portrayed the changes as an “agile” way of making flexibilization more sustainable, although investors seem to be taking a step back from the total stimulus. The decision to limit purchases to only TOPIX-linked ETFs dropped Nikkei by 1.6%.
South Korea lost 1%. Chinese blue chips fell 1.9%, perhaps bothered by a heated exchange between Chinese and American diplomats in the first face-to-face conversations of the Biden era.
The increase in bond yields weighed on gold, which offers no fixed return, and dropped it by 0.4% to $ 1,743 an ounce.
Additional reporting by Wayne Cole and Elizabeth Dilts Marshall; edition of Shri Navaratnam, Lincoln Feast, Larry King