The yield on 10-year Treasuries increased 9.1 bps to 4.649 per cent, reversing some of the 29 bps drop last week
A gauge of global equities gained and Treasury yields bounced back on Monday as last week’s rally in stocks and bonds on hopes that interest rates will soon be cut faded, with markets evaluating an improving but still uncertain outlook for growth and inflation.
The three main stock indices on Wall Street eked out gains. The yield on 10-year Treasuries increased 9.1 bps to 4.649 per cent, reversing some of the 29 bps drop last week when the benchmark note posted its biggest weekly decline since March.
A benign U.S. payrolls report on Friday and upbeat productivity numbers indicated the US labour market was cooling enough for the Fed to stop the need for further rate hikes.
But the decline in market yields is a double-edged sword as they could increase corporate loans and spur economic growth, said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.
The markets are in wait-and-see mode, he said, as traders evaluate whether the economy slows further or in fact proves to be more resilient than the Fed would like to see.
The Fed could even be compelled to raise rates to ensure the pace of inflation remains on a downward trajectory and does not rebound, Goldberg added.
Futures now see the Fed’s overnight lending rate staying above 5 per cent through next June instead of July, and have priced in around 85 basis points of rate cuts by the end of next year, or more than the 50 basis points of cuts envisioned recently by policymakers.
MSCI’s gauge of stocks across the globe ended 0.4 per cent to post its sixth successive session of gains. But the pan-European STOXX 600 index shed 0.16 per cent as the major stock indices for France, Germany, Italy and Spain all dropped.
On Wall Street, the Dow Jones Industrial Average increased 0.1 per cent, the S&P 500 added 0.18 per cent and the Nasdaq Composite gained 0.3 per cent.