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Bonds haunted by uncertainties old and new

A look at the day ahead in European and global markets from Tom Westbrook

It’s looking like the worst week of another bad year for bonds.

The benchmark 10-year Treasury yield is up 31 basis points since last Friday and briefly touched 5% in New York, setting off another flurry of what Brent Donnelly of Spectra Markets noted have become familiar headlines: “reaches highest (lowest) level since 2007.”

The surge in yields is pushing up mortgage rates, likely causing painful losses for many investment funds and banks that could in turn curb lending in the economy.

It is also pushing borrowing costs up across the developed world and sucking much-needed money out of emerging markets, while lifting the bar for buying stocks at all.

Measured by MSCI’s Asia ex-Japan index (.MIAPJ0000PUS), Asian stocks hit an 11-month low on Friday. Curiously, the dollar hasn’t moved higher with the latest leap in yields, perhaps because currency traders see recession in the offing.

Fed Chair Jerome Powell said little that markets didn’t already know on Thursday, but in keeping his options open he kept the pressure on bonds.

“A range of uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little,” he said.

“We will make decisions … based on the totality of the incoming data, the evolving outlook, and the balance of risks.”

U.S. President Joe Biden asked Americans to spend billions more dollars to help Israel fight Hamas while Israel’s defence chief told his troops to be ready to go into the Gaza Strip.

Japan’s core inflation in September slowed below the 3% threshold for the first time in more than a year, but it stayed above the central bank target, and bonds sold off hard enough to force the Bank of Japan to take action in the market.

China, the world’s top graphite producer, said on Friday it would require permits for exports of some graphite products, which are used in electric car batteries.

We’ll find out at the open in London if yesterday’s incident that derailed trading in small and mid-cap shares on Thursday at the stock exchange is resolved. British retail sales data is also due, ahead of a handful of Fed speakers.

Elsewhere, inflation has arrived on the Formula One track, with drivers stunned at the sport’s governing body lifting the maximum fine stewards can levy to a million euros.


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