On Tuesday the 30-year US Treasury yield hit its highest level since 2007, reaching 5.3% amid concerns around inflation as well as the high levels of current debt. The following session yields pulled back after the Treasury Department announced it would double its buyback operations for bonds maturing in 10 years or more, to at least $4bn per operation from the current $2bn from 09 September. The relief did not last long as investors questioned how much impact it would have, with yields subsequently rebounding and holding near highs.
The bond sell-off weighed on US stock indices. The S&P 500 ended the prior week at a record high however it slipped from its peak and posted a 1.4% loss. Meanwhile the Dow Jones Industrial Average dropped 0.9% and the tech-heavy Nasdaq Composite was down 2.1%. Amongst sectors, healthcare and energy saw the biggest weekly gains. The healthcare sector was boosted by Moderna and Merck on positive late-stage trial results for a cancer vaccine. Energy was supported by rising oil prices, seeing a five-day winning streak as tensions in the Middle East remained. In contrast technology and utilities were the notable laggards. Mixed retail earnings also weighed on sentiment.
In Japan, government bond yields also spiked early in the week. The 10-year Japanese government bond yield reached a 30-year high of 2.94%, with increasing inflation concerns adding weight to the belief that the Bank of Japan could raise interest rates in the near term. Yields retreated before picking up again on Friday as inflation data rose. The risk-off mood weighed on equities, with the Nikkei 225 falling 3.9% for the week, whereby technology stocks were among laggards. In China the Shanghai Composite dropped 0.6%, amid worries around an economic slowdown owing to softer economic data. In contrast the Hong Kong Hang Seng was up 3.6% as healthcare stocks outperformed.
European markets drifted lower for most of the week, with a Friday advance not enough to prevent a weekly loss. It was a similar story to other regions, in which investors were wary over firmer oil prices and inflation as well as higher bond yields. Germany’s 10-year Bund yield hit its highest level since April 2011. The pan-European STOXX ended 0.6% lower overall, in its second consecutive weekly loss. It had been on a seven-session losing streak, before breaking it on Friday on broad based gains. There was some support from improving encouraging economic data releases, such as higher-than-expected purchasing managers’ index data.