European and US government bonds have fallen in price, as the Bank of England warned of sustained high inflation, Norway raised interest rates, and the US central bank decided reduce monetary stimulus in the era of the pandemic.
Wall Street’s S&P 500 gained 1.2% at the start of trading, heading for its best trading day since July 20. The technology-focused Nasdaq Composite gained 0.8% and the European Stoxx 600 rose 1%.
Evergrande, the world’s most indebted real estate developer whose business has been hit by Chinese government restrictions on lending to the real estate sector, has a payment due on a dollar bond Thursday. The prices of its bonds indicate that investors expect it to default.
Evergrande contagion fears rocked global markets on Monday. On Wednesday, however, the stressed developer said it had “resolved” the payment of an onshore bond.
“The narrative has gone from Evergrande to a systemic problem, to one where Evergrande is ultimately restructured, but the collateral damage will be localized,” said Robert Carnell, regional research manager for Asia-Pacific at ING.
The BoE kept interest rates at a record 0.1% on Thursday, but warned that consumer price inflation is expected to rise to “slightly above 4%” in Q4. year if gas prices continued to soar in Europe.
The yield on the UK 10-year gilt, which moves in the opposite direction of its price, rose 0.09 percentage point to 0.89% as traders speculated that the central bank was getting closer to a rate hike. ‘interest.
The BoE’s statement came hours after Norway’s Norges Bank became the first G10 central bank to raise benchmark borrowing costs in the Covid-19 era.
The Canadian 10-year bond yield rose 0.07 percentage point to 1.284 percent and the equivalent German Bund yield rose 0.05 percentage point to minus 0.274 percent.
In the United States, the yield on the 10-year Treasury bill rose 0.04 percentage point to 1.367 percent. Government bonds tend to fall when traders anticipate inflation or higher interest rates, which erodes the real yields of fixed interest securities.
“We had a lot of news [from central banks] over the last couple of days and that has obviously sparked some momentum towards what we have been expecting for some time, which is higher bond yields, ”said Caroline Simmons, UK investment director in the management division of UBS fortune.
On Wednesday, the Federal Reserve said half of its Federal Open Market Committee officials expected the first post-pandemic rate hike to take place next year, a larger proportion than the last release of their projections in June.
In the forex markets, the British pound gained 0.9% against the dollar to hit $ 1.374, while the euro rose 0.5% to $ 1.175.
Ewout Van Schaick, head of multi-asset investing at NN Investment Partners, said he expected “very, very gradual moves” towards interest rate tightening by the US central bank as it was closely monitoring the post-pandemic progress of the country’s labor market. .
“This is a patient, data-dependent Fed that will do all it can to help the job market, as long as inflation allows,” added Scott Ruesterholz, portfolio manager at Insight Investment.