Receive free U.S. Treasury Bond updates
we will send you myFT Daily Digest Email summary of latest news U.S. Treasury Bonds There is news every morning.
U.S. stocks and government bonds are set for their worst month of the year as investors react to the Federal Reserve’s news that interest rates will stay higher for longer than previously expected.
Wall Street’s benchmark S&P 500 index fell more than 5% in September, pushing the index to its first quarterly loss in 12 months.
The U.S. bond market also accelerated its retreat last week after the Federal Reserve signaled that interest rate cuts next year and in 2025 would be much slower than investors expected.
The 10-year Treasury yield, which has risen as prices fell, hit its highest level since 2007 on Wednesday and was on track for its biggest monthly gain in a year.
“A penny down actually means a penny higher means a long-term move higher,” said Mark Dowding, chief investment officer at RBC BlueBay Fixed Income. “That realization has been hurting sentiment.”
Earlier this month, futures market traders were betting that interest rates would reach around 4.2% by the end of 2024. Now they’re betting rates will reach 4.8% by then.
“The market has been wrong about Fed policy this year,” said Kevin Gordon, senior investment strategist at Charles Schwab. “For most of the year, the market expected a sharp cut this year. . . . Now people are starting to accept it.’ Maybe (the Fed) does think so’.”
Expectations of higher long-term interest rates have hit stocks as rising bond yields impact investors’ search for returns and the potential impact on the real economy.
The S&P is still up 11% so far this year, but is supported by a handful of heavyweight technology stocks that surged earlier in the year on enthusiasm for artificial intelligence. The equal-weighted version of the index fell back into negative territory for the year this week.
Corporate debt markets have also been affected, as investors worry that heavily indebted companies may struggle to refinance their borrowings amid rising interest rates.
The average interest rate on U.S. junk bonds has risen from 8.5% to nearly 9% this month, outstripping the rise in Treasury yields.
The shift in the U.S. comes as the Federal Reserve reacts to strong economic data and a still-hot labor market, in contrast to the euro zone and Britain, which have concerns about a recession that would ease the ongoing Pressure from high interest rates to control inflation – greater.
“The market finally seems to agree that we are not on the brink of a recession,” said Sonal Desai, chief investment officer at Franklin Templeton Fixed Income.
Fed officials last week lowered their unemployment forecasts and raised their growth forecasts.
Although the central bank kept its key interest rate steady in a range of 5.25% to 5.5%, policymakers’ forecasts point to another rate hike this year.
The surge in oil prices has heightened concerns about continued inflation and tightening monetary policy.
Brent crude oil rose nearly 3% on Wednesday to a 10-month high above $97 a barrel as U.S. inventories fell below expectations, fueling concerns about global supply shortages.
Some investors predict that despite recent strong data, rising interest rates could eventually push the economy into recession.
“One of our concerns is that going into 2024, the lagged effects of the Fed’s tightening will catch up with the economy,” said Jeff Schulze, head of economics and market strategy at ClearBridge Investments. “The longer rates are maintained, the greater the opportunity. “
Svlook
