US Treasury yields soar to their highest level in more than a decade ahead of the Federal Reserve’s main meeting

Yields on US government debt reached their highest level in more than a decade on Monday as investors prepared for the third time in a row for a 0.75 percentage point interest rate increase from the Federal Reserve on Wednesday.

The yield on US 10-year government debt, a benchmark for global borrowing costs, rose above 3.5 percent for the first time since April 2011 as investors sold bonds, before easing back to 3.48 percent. The yield on the two-year Treasury rose to a 15-year high of 3.95 percent. While the two-year yield tracks interest rate expectations particularly well, the full range of returns has skyrocketed as longer expectations emerge for higher borrowing costs.

In stocks, the broad S&P 500 was down 0.1 percent in the afternoon on Wall Street, while the Stoxx 600 in Europe was down 0.1 percent. The Standard & Poor’s Index fell 0.9 percent earlier on Monday. The technology-heavy Nasdaq Composite Index fell 0.1 percent.

Monday’s weak performance comes after MSCI’s broad index of developed and emerging market shares fell 4 percent last week in its biggest weekly decline since June. Concerns about the health of the global economy and the specter of further major interest rate hikes from major central banks have raised investor concerns.

“This looks like a full week or a break. There is a residual worry from the repricing we had last week and there is absolutely no sense that sentiment is turning into something better,” said Sami Char, chief economist at Lombard Odier.

In currencies, the dollar rose about 0.1 percent against a basket of other currencies, continuing the strong rally in recent months that has been driven by higher US interest rates.

“The currency market probably best sums up how close we are to some sort of breaking point,” Shar said. The big question will be whether we will get some positive signals from central banks about when the hiking cycle will peak. . . You don’t see many paths the Fed can be reassured.”

The consensus expectation on Wall Street is that the Federal Reserve will raise interest rates by 0.75 percentage points at the end of its two-day meeting on Wednesday. Market expectations for a third consecutive rise of this size were bolstered last week by data showing that US consumer price inflation slowed less than expected in August.

Pricing based on federal money futures suggests that the Fed will raise its key rate to 4.4 percent in the first months of 2023, from the current range of 2.25 percent to 2.5 percent, as policymakers try to cool inflation.

Concerns are mounting among investors that the central bank’s efforts to tame inflation through monetary tightening will push the US economy into recession as debt servicing costs for businesses and individual borrowers soar.

The yield on US 10-year inflation-linked bonds, which indicates the returns investors can expect to receive after accounting for inflation, peaked at 1.16 percent, the highest since 2018. The so-called real yields were around minus 1 per capita. enacted at the start of the year, enticing valuations of fast-growing technology companies that weigh heavily on US stock indices.

The Japanese yen fell 0.3 percent to 143 yen against the dollar after hitting a 24-year low last week before the government ramped up its verbal intervention aimed at calming the country’s currency market.

The Bank of Japan is due to make its final policy decision on Thursday. Most economists expect the Bank of Japan to commit to keeping 10-year bond yields near zero as it tries to stoke more permanent inflation in an economy that has seen decades of tepid price growth.

The Bank of England is also due to announce its interest rate decision on Thursday, with consensus expectations among City of London analysts pointing to a 0.5 percentage point rise.

Asian stocks were also lower, with the MSCI index of shares in the region down about 0.4 percent. Stock markets in the UK and Japan were closed for public holidays.

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