U.S. Treasury and Global Bond Yields Advanced Ahead of Rate Decisions, Stocks Struggled to Advance

Barry Adams
18 Sep, 2023
New York City

Stocks lacked direction on Wall Street and investors avoided taking additional bets ahead of the rate decisions on Wednesday. 

Crude oil prices advanced to a new high in 2023 and reached the level last seen in November after supply worries dominated the energy market. 

Futures of immediate month delivery of West Texas crude oil jumped above $91 a barrel and Brent crude oil crossed $94 a barrel. 

Crude oil prices advanced for the third week in a row and jumped nearly 30% in the third quarter on the expectations of a demand recovery in China and curtailed energy supplies from Russia and Saudi Arabia. 

The steady rise in oil price has got the bond market worried about the rebound in consumer price inflation. 

The yield on the 2-year U.S. Treasury jumped above 5% and reached a level not seen since March, on the worries of higher inflation following the persistent rise in crude oil prices.  

Investors are widely anticipating that the  U.S. Federal Reserve is likely to hold rates at the conclusion of a 2-day meeting ending on Wednesday. 

Despite the multiple rate hikes over the last sixteen months, inflation has hovered above the Fed's 2% target. 

Moreover, while the Fed's policymakers talk tough on fighting inflation, Chairman Jerome Powell has refrained from setting a deadline to bring down inflation to 2%. 

Fed's unwillingness to set a deadline for bringing down inflation, highlights loose monetary policy and rates are still not restrictive enough.  

 

U.S. Indexes & Yields 

The S&P 500 index inched down 0.05% to 4,452.20 and the Nasdaq Composite decreased 0.02% to 13,704.56. 

The yield on 2-year Treasury notes hovered near 5.05%, 10-year Treasury notes inched slightly higher to 4.32% and 30-year Treasury bonds edged up to 4.41%. 

Crude oil increased $0.75 to $91.51 a barrel and natural gas prices increased 2 cents to $2.66 a thermal unit. 

The dollar index edged slightly lower to 105.24, the level last seen in March but higher than the low of 99.85 on July 13. 

 

Rate anxieties dragged market indexes down in Monday's trading and investors awaited central bank decisions this week. 

The yields trended higher ahead of the rate decisions from the Bank of England and the U.S. Federal Reserve later in the week. 

The Bank of England is scheduled to lift its rate by 24 basis points and the Bank of Japan is also scheduled to announce its rate decision on Thursday. 

Central banks of Sweden, Norway and Switzerland are also set to announce their rate decisions this week. 

The U.S. Federal Reserve is likely to pause rate hike on Wednesday but investors are worried that higher rates are likely to stay longer as inflation shows no sign of abating. 

Despite multiple rate hikes by the central bank in the UK, inflation in the UK has stayed above 7%.  

The yield on the UK bonds have been on the rise in anticipation of rate hikes, and led other sovereign bond yields in the European Union, surpassing even Italy which generally  

 

Europe Indexes & Yields

The DAX index decreased 1.0% to 15,727.12, the CAC-40 index declined 1.4% to 7,276.14 and the FTSE 100 index inched down 0.7% to 7,652.94.

In the previous week, the DAX increased 0.7%, the CAC 40 advanced 1.6% and the FTSE 100 jumped 3.4%. 

German bond yields advanced to a six-month high and the U.S. dollar hovered near a six-month high as investors forecasted higher rates in the Euro Area.

The yield on 10-year German bonds increased to 2.69%, French bonds traded higher to 3.24%, the UK gilts edged up to 4.38% and Italian bonds rose to 4.49%.

The euro edged lower to a three-month low to $1.066, the British pound to $1.239 and the U.S. dollar fetched 89.61 Swiss cents.

Brent crude increased $0.55 to $94.48 a barrel and the Dutch TTF natural gas decreased €2.05 to €34.48 per MWh.

 

Europe Stock Movers

Societe Generale SA plunged 11% to €23.58 after the recently appointed chief executive announced a plan to cut costs and lift stagnant sales by 2026. 

However, investors sold stock after the revenue and earnings outlook fell short of investors' expectations. 

Nordic Semiconductor ASA dropped 13.5% to €9.25 after the Norwegian chipmaker lowered its third quarter revenue outlook amid ongoing slump.