US 10-year Treasury yield hits 4%, keeps equity bulls in check

Source: Reuters.

Potentially market moving data this week is not due until Thursday in the form of US CPI, and until then the tone remains set by Friday's data which showed the US economy unexpectedly added the most jobs in six months in September.

Markets slashed bets on a 50-basis-point rate cut at the Federal Reserve's following policy announcement on Thursday, 7 November- which had been above 50% a week ago.

That sent yields on government bonds higher, with the benchmark 10-year Treasury yield hitting 4% for the first time in two months on Monday, up 2 basis points on the day and building on Friday's 13 bp surge.

Shares in Europe, which had risen in the aftermath of the jobs data, dipped 0.2% with those like banks, that benefit from higher rates, gaining, and real estate, which does not, falling.

US S&P500 futures fell 0.3%, though the index gained 0.9% Friday, and is back around all-time highs.

"What came out of last week is pretty obvious, if we just stick to the macro economic situation, there is no recession, no inflation, central banks are in a rate-cutting cycle and, on top of that, China is contributing to this story too, so let's enjoy," said Samy Chaar, chief economist at Lombard Odier.

"If you want to think about risks, the purely economic risks have passed - except for some less straightforward stories in Europe centred around Germany - but there's geopolitics and the US elections are getting closer."

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Hezbollah rockets hit Israel's third largest city Haifa early on Monday as the country looked poised to expand ground incursions into southern Lebanon on the first anniversary of the Gaza war, which has spread conflict across the Middle East.

Brent crude oil futures were up 1.3% at $79.08 a barrel, just shy of Friday's one-month high, having posted the biggest weekly gain in more than a year last week.

Asia shares rose, though Chinese onshore markets remain on holiday until Tuesday, with investors waiting to see whether the surge in stocks on news of incoming economic stimulus will continue.

Strong dollar

Higher US yields supported the dollar, particularly against the rate-sensitive Japanese yen, with the greenback pushing as high as 149.10 yen for the first time since Friday, 16 August 2024.

Gains were arrested after Japan's top currency diplomat, Atsushi Mimura, said officials were monitoring foreign-exchange moves, including speculative trading, "with a sense of urgency", and the dollar was last at 148.3 yen.

The dollar index, which tracks the currency against a basket including the euro, yen and pound, was at 102.5, a whisker off a seven-week top hit Friday.

"Looking at the next three weeks, we cannot identify a clear catalyst that can reverse the course for the dollar, and a consolidation of recent gains looks more likely," said ING analysts in a note.

European Central Bank policy makers now appear increasingly willing to cut rates this month, in line with market pricing, removing one factor that had supported the euro against the dollar.

French Central Bank chief Francois Villeroy de Galhau was the latest to join the chorus, telling an Italian newspaper in remarks published on Monday, that a rate cut in October was quite probable.

But euro zone bonds were focused on developments on the other side of the Atlantic and the German 10-year Bund yield rose 4 bps to 2.54%, a one-month high.

Gold was flat at $2,650 an ounce.