Markets stabilise after bond yield surge triggers global sell-off
Government bond yields surged globally this week amid fiscal concerns, but markets are showing signs of recovery today.
Markets stabilising
Markets are regaining some composure this morning following a turbulent week dominated by surging government bond yields and growing concerns over the fiscal stability of major economies.
In the US, the House of Representatives narrowly passed President Donald Trump’s new tax-and-spending package, which could add an estimated $3.8 trillion to the US national debt over the next decade. The announcement compounded anxiety following last week’s US credit rating downgrade by Moody’s and drove yields on long-dated Treasuries sharply higher — the 30-year bond yield briefly breached the critical 5.16% level before retreating to just above 5% in Asian trading today.
Despite the volatility, some buyers returned to the bond market by week’s end, offering a glimmer of stability. However, investor sentiment remains cautious. A tepid response to government bond auctions in both the US and Japan this week reinforced the message that markets are demanding a higher premium to lend over longer horizons amid an uncertain fiscal and inflationary outlook. In the UK, 10-year gilt yields also hit their highest since mid-January, signalling that the bond sell-off is a global phenomenon.
Asian equities ticked modestly higher overnight, with Japan’s Nikkei 225 gaining around 1%, supported by data showing the fastest pace of core inflation in over two years. However, broader regional gains were limited, and Chinese and Hong Kong shares remained flat.
On Wall Street, major indices ended mixed on Thursday after a choppy session. The Nasdaq 100 edged higher, helped by strong performances from tech giants like Alphabet and a 13% rally in Snowflake, while the S&P 500 and Dow Jones closed essentially flat. The budget bill will now go to the Senate for further debate, where it will face challenge from both sides of the aisle, and major amendments are expected which may slow its passage.
Elsewhere, the US dollar weakened further and is on course for its first weekly loss against the euro and Japanese yen in over a month. Spot gold held steady around $3,292.00/oz and is set for a 2.8% weekly gain.
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