Global bond selloff deepens, oil hits year’s high
A GLOBAL rout in government bonds deepened as long-term U.S. and European borrowing costs reached their highest level this year, spreading anxiety into stock and other markets.
The standoff between Greece and its lenders, together with disappointing data on private U.S. jobs growth, kept a lid on the more than a week-long rise in benchmark U.S. and German yields, underpinned by reduced worries about deflation in the euro zone.
“If the rise in yield resulting from dumping Bunds is compounded into other G10 government bonds by possible signs of oil-driven reflation currents, then stocks will have to take notice,” said City Index Chief Markets Strategist Ashraf Laidi in London.
Oil prices hit their highs of the year on shrinking U.S. inventory and conflict in the Middle East. The month-long rally in oil boosted energy shares but was not enough to stem further losses on Wall Street and European equities, which rebounded from initial lows.
Data showing some life in European business activity at the start of the second quarter stoked the euro to a 10-week high against the dollar. The euro was up 1.3 percent at $1.1332.
The dollar index was down 0.9 percent at 94.180, retreating from a one-week high of 95.946. [FRX/] Germany’s 10-year yield hit a 2015 high just under 0.6 percent. The yield has more than tripled in a week and risen 10-fold in just three weeks.
[GVD/EUR] Benchmark 10-year yields on Spanish, Italian and UK government bonds also hit year-highs before retreating. The 10-year U.S. Treasury yield touched 2.249 percent, within 1 basis point of its 2015 peak.
It retreated from its session high after payroll processor ADP said U.S. companies added 169,000 workers in April, fewer than analysts forecast. A broad bounce in commodities saw oil and copper prices rise to their highest levels this year. Brent crude was last up 59 cents or 0.87 percent at $68.11 a barrel.
U.S. crude was last up 74 cents or 1.23 percent at $61.14 per barrel. Copper futures in London fell 1.3 percent to $6,396 a ton, retreating from their highest since mid-December set on Tuesday.
The rise in commodity prices was unable to stop the reversal of stock bets linked to a protracted period of disinflation in Europe. Traders now worry the European Central Bank will not need to provide additional stimulus given nascent signs of price stability in the region.
Greece’s debt situation remained a worry even as the cash-strapped nation made a small interest payment to the International Monetary Fund. In midday U.S. trading, the Dow Jones industrial average fell 82.55 points, or 0.46 percent, to 17,845.65, the S&P 500 was down 7.44 points, or 0.36 percent, to 2,082.02 and the Nasdaq Composite declined 16.32 points, or 0.33 percent, to 4,923.01. [.N] Federal Reserve Chair Janet Yellen said equity valuations are “generally quite high” and warned of potential dangers.
Europe’s index of leading 300 stocks closed down 0.5 percent at 1,546.72 after touching a two-month low of 1,543.55. [.EU] The MSCI world equity index, which tracks shares in 45 nations, fell 0.2 percent to 434.44.
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