U.S. Treasury Yields Advanced and Investors Adjust to Higher Rates for Longer

Barry Adams
25 Sep, 2023
New York City

Market indexes lacked direction as investors looked to rising bond yields around the world. 

Benchmark indexes on Wall Street were little changed as investors debated the future direction of interest rates. 

Stocks traded sideways on the first day of the final week in September and popular indexes are expected to close down for the second month in a row. 

The yield on 2-year and 10-year Treasury notes jumped to the levels last seen in 2007 and 30-year Treasury bonds edged higher to the level last seen in 2010. 

Stocks have struggled after the Federal Reserve signaled rates are likely to stay higher despite the recent cooling trend in inflation, but prices are rising at a faster rate than the Fed's target rate of 2%. 

Rate hike worries have negatively impacted the S&P 500 index and the Nasdaq Composite index for the second month in a row in September. 

The Nasdaq is down 6% and the S&P 500 index has declined 4% in the month so far, after the higher rates dampened the earnings outlook. 

However, for the year so far, the S&P 500 index is up 13% and the Nasdaq Composite has  advanced 27%. 

The rate hike worries were also visible in European trading and the yield on German, French and Italian bonds jumped to 11-year highs. 

The European Central Bank is also expected to keep higher rates  for longer because despite multiple rate hikes in the currency union inflation is still significantly above the central bank's target rate of 2%. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.07% to 4,324.65 and the Nasdaq Composite advanced 0.1% to 13,230.27. 

The yield on 2-year Treasury notes hovered at 5.13%, 10-year Treasury notes inched higher to 4.54% and 30-year Treasury bonds edged up to 4.66%. 

Crude oil decreased $0.40 to $89.62 a barrel and natural gas prices declined 1 cent to $2.62 a thermal unit. 

The dollar index edged higher to 105.97, the level last seen in November 2022 and extended gains from the low of 99.85 on July 13, 2023.  

 

U.S. Stock Movers 

Movie studio operators traded higher after writers' union reached a preliminary agreement with studios. 

Warner Bros Discovery, Paramount Global, Amazon and Disney traded slightly higher. 

HP Inc decreased .2% to $26.77 after Berkshire Hathaway sold 4.8 million shares held by the conglomerate for approximately for $130 million. 

Nio Inc decreased 4.3% to after the company said it is considering to raise $3 billion. 

 

European Bond Yields Jump to 12-year Highs 

European markets extended losses and investors debated future rate path and looming global economic slowdown. 

Benchmark indexes in Frankfurt, Paris and London extended previous weeks losses after the yields on European bonds traded at one-decade high. 

German bond yields jumped to the level last seen in 2011 and investors expected higher rates to persist as central bankers struggle with elevated inflation.

The euro edged lower against the dollar after European Central Bank Governing Council member Francois Villeroy de Galhau supported the case for higher interest rates to stay longer. 

ECB President Christine Lagarde is scheduled to testify before the European Commission's Committee on Economic and Monetary Affairs later in the day, and investors looking for clues to the innerworkings of the economy after recently the central bank lifted rates 10th time in a row. 

Market sentiment has been steadily shifting away  from stocks as bond yields advance, crude oil prices hover at this year's high, stubborn inflation stays above the target range and the euro drifts to  two-month low. 

 

Europe Indexes & Yields

The DAX index decreased 1.0% to 15,405.49, the CAC-40 index fell 0.9% to 7,123.88 and the FTSE 100 index fell 0.8% to 7,623.99. 

The yield on 10-year German bonds increased to 2.80%, French bonds traded higher to 3.34%, the UK gilts edged up to 4.32% and Italian bonds rose to 4.69%.

The euro edged lower to a three-month low to $1.059, the British pound to $1.22 and the U.S. dollar fetched 91.22 Swiss cents.

Natural gas prices continued to climb higher for the fifth day in a row amid supply worries, despite elevated inventories in the region. 

Norway's Gassco extended production shutdown at its Skarv field by a week to October 8. 

Investors have been bidding up prices on the production disruptions worries by extreme weather events and prolonged outages at the U.S. LNG shipment terminals amid ongoing Russia's invasion of Ukraine. 

Brent crude increased $0.21 to $93.48 a barrel and the Dutch TTF natural gas edged higher €4.65 to €44.44 per MWh.

 

Europe Stock Movers 

China-exposed luxury stocks in Paris declined between 2% and 3% and the UK-based mining companies fell between 1% and 2% on the ongoing China property market woes. 

China's largest property company and the most indebted property group in the world said it is not able to issue more debt because of ongoing investigation in its domestic subsidiary. 

Swedish property SBB AB jumped 26% to kr kr3.79 after the company agreed to handover control of a portfolio of school buildings to Canada-based Brookfield Asset Management Ltd. 

Entain Plc plunged 11.5% to 931.0 pence after the online gambling platform issued revenue alert for the third quarter and full-year. 

CRH added 2.2% to 4,459.0 pence after the building material company announced its plan to repurchase 17.7 million shares. 

Aviva Plc declined 1.3% to 393 pence after the UK-based insurance group agreed to acquire protection business in the UK owned by AIG.