Treasuries sell-off pushes 10-year yields to 2023 high

Stocks deepened a slump, unraveling more of this year’s high-powered rally as Treasuries added to their decline. Investors braced for another interest rate increase from the Bank of England later Thursday.

Treasuries extended their selloff, pushing 10-year yields to around 4.15%, the highest this year, following hot labor-market data and a ramp-up in US government debt issuance. 

European stocks fell 1% as they headed for their steepest three-day retreat since March. US contracts signaled further weakness after the worst session in three months for the S&P 500. The US benchmark slipped 1.4% Wednesday while the Nasdaq 100 slid 2.2%, sending the VIX index, known as Wall Street’s “fear gauge” to the highest since May. Asian shares also dropped for a third day. 

“Given the recent rally in US stocks, especially in the Nasdaq, there’s a lot of sensitivity to rising yields, and the re-assessment of the value of equities to that of bonds,” said Gerry Fowler, head of European equity strategy and global derivative strategy at UBS Group AG. “In Europe, a lackluster earnings season is also weighing on the outlook. So many are taking the opportunity to implement a more bearish positioning.”

In the latest earnings news, Infineon Technologies AG plunged as much as 12% after disappointing forecasts from the German chipmaker. Deutsche Lufthansa AG dropped amid concerns over debt and higher costs. 

Markets are leaning toward a 25 basis points increase by the BOE, but traders haven’t fully ruled out a 50-point hike as policymakers seek to subdue UK inflation that’s four times the official target. There’s also speculation the BOE will surprise economists by signaling an increase to the pace of bond sales as it looks to reduce its outsized footprint in the market. 

“The moderation in UK consumer prices has lagged behind the rest of Europe, which may prompt the BOE to signal that it will maintain a hawkish stance in the remaining months of the year,” economists at Rand Merchant Bank in Johannesburg said in a client note.

The dollar strengthened, while the yen gained after the Bank of Japan announced an unscheduled round of bond buying, the second intervention since the more flexible yield curve control regime unveiled last week.

The selling in Treasuries was helped along by private payrolls data that showed US companies added 324,000 workers last month, beating the consensus forecast of 190,000. Investors also reacted to news that the Treasury will issue $103 billion of securities next week, slightly more than forecast, and fresh on the heels of Fitch Ratings’ downgrade of the US.

Bill Ackman, founder and chief executive officer of Pershing Square Capital Management, said he had shorted 30-year Treasuries, which he described as overbought from a supply and demand perspective.

“The US downgrade doesn’t have any direct impact on markets, but what’s happened is there’s been a lot of concurrent news,” Fowler at UBS said. “Treasury supply is going to pick up. And the Bank of Japan’s policy change has also removed the floor on bonds and that’s led to rising yields.”

On a busy day of corporate results, Societe Generale SA rose as the French lender beat most analyst estimates. Anheuser Busch InBev NV gained as the world’s largest brewer reported earnings that exceeded expectations. Zalando SE rallied after the online fashion retailer’s profit topped projections.

PayPal Holdings Inc. fell in US premarket trading after the digital payments company’s transaction revenue fell short of estimates. Qualcomm Inc. slid as much as 8% after the chipmaker gave a revenue outlook seen as weak by analysts, underlining headwinds in the handset market. 

Investors will be keeping a keen eye on Apple Inc. earnings due later. The iPhone maker is expected to report its third consecutive year-over-year revenue decline. Amazon.com Inc. will also report quarterly results, with investors and analysts closely watching its cloud computing business.

In commodities, iron ore slipped back below $100 a ton as investors questioned China’s resolve to revive growth with steel-intensive stimulus and the nation’s biggest group of mills called for curbs on trading. Futures in Singapore lost as much as 4.3%, to head for the sixth weekly drop in the past seven. Shares in European miners dropped. 

 Key events this week:

• Bank of England rate decision, Thursday
• US initial jobless claims, productivity, factory orders, ISM Services, Thursday
• Eurozone retail sales, Friday
• US unemployment rate, non-farm payrolls, Friday

Some of the main moves in markets:

STOCKS

• The Stoxx Europe 600 fell 1% as of 9:44 a.m. London time
• S&P 500 futures fell 0.6%
• Nasdaq 100 futures fell 0.7%
• Futures on the Dow Jones Industrial Average fell 0.5%
• The MSCI Asia Pacific Index fell 0.8%
• The MSCI Emerging Markets Index fell 0.6%

CURRENCIES

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.2% to $1.0915
• The Japanese yen rose 0.2% to 143.00 per dollar
• The offshore yuan was little changed at 7.2027 per dollar
• The British pound fell 0.2% to $1.2681

CRYPTOCURRENCIES

• Bitcoin fell 0.3% to $29,033.04
• Ether fell 0.7% to $1,827.8

BONDS

• The yield on 10-year Treasuries advanced eight basis points to 4.15%
• Germany’s 10-year yield advanced three basis points to 2.57%
• Britain’s 10-year yield advanced three basis points to 4.43%

COMMODITIES

• Brent crude fell 0.5% to $82.75 a barrel
• Spot gold rose 0.1% to $1,936.41 an ounce

This story was produced with the assistance of Bloomberg Automation.