Wall Street sinks again as bond yields rise

US Treasury bond yields spike and the Dow Jones mini-crash

US Treasury bond yields spike and the Dow Jones mini-crash

Next week, coming off one of the most volatile stretches in years, two important readings on US inflation could help determine whether the stock market begins to settle or if another bout of volatility is in store.

Treasury yields, which were nearly flat in US afternoon trading, had climbed after the Bank of England said interest rates probably need to rise sooner, adding to expectations of reduced central bank monetary stimulus globally.

Cabana said his call for a 2.90 percent 10 year this year is clearly at risk.

"The bond market has definitely got the stock market's attention", said Ryan Detrick, senior market strategist at LPL Financial.

And the stock market is now in a correction - 10% off its record high just two weeks ago. The U.S. Senate reached a bipartisan deal Wednesday that would boost spending limits by $300 billion over the next two years. The surge in Treasury yields pushed the VIX's bond-market cousin to its highest since April.

At last, the markets are "catching up", said Nandini Ramakrishnan, a global market strategist at JPMorgan Asset Management.

The S&P 500 gave up 44 points, or 1.7 percent, to 2,637.

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Investors ignored data from China showing that both producer and consumer inflation eased as expected in January. On Thursday, New York Federal Reserve President William Dudley said the central bank's forecast of three rate hikes still seemed a "very reasonable projection" but added there was a potential for more, should the economy look stronger. The Dow stormed back for a gain after losing more than 500 points.

The 10-year Treasury yield has receded in recent days and is trading around 2.77% on Wednesday.

Since the start of the year, prices for developed-market sovereign bonds have been in decline, sending yields sharply higher. But overall, rising yields have been blamed for kicking off a stock market rout that's left the S&P 500 index on track for its worst week since August 2011 and the Dow Jones Industrial Average looking at its biggest weekly percentage loss since October 2008.

"The pace really does matter", said Ron Temple, Head of US Equities and Co-Head of Multi Asset Investing at Lazard Asset Management in NY. The losses were steady, unlike the sharp swings seen over the past few days. In New Zealand, the S&P/NZX50 was down 1.68 per cent to 8040 points in early trade. The Dow now has an average intraday swing over the past 50 days of 265.76 points, the highest since March 2016. Gold was down only 1.6% this week, outperforming most assets.

An improving outlook internationally is adding to pressure on global fixed income markets. "When the market is this levered, even tiny events can trigger a big avalanche".

European bond yields also rose, lifted by the prospect of increased fiscal spending after Wednesday's coalition government deal in Germany. The 10-year is the benchmark, best known to investors, and its yield influences a whole range of loans, including home mortgages. Corporate earnings have never been higher, and USA and global economic growth has gathered momentum.

"You don't want to move too much too soon", Ms Coupe said.

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