Global bond yields rise, while stocks slip on threats of further US tariffs

New York — Signs that the Bank of Japan (BoJ) might scale back support for the economy faster than expected sent tremors through debt markets on Monday, while stocks slipped as threats of further US tariffs on China drained risk appetite.

Bond yields climbed after reports that the BoJ was discussing modifying its huge stimulus programme sent Japan’s 10-year bond yield to a six-month high.

The report rekindled anxieties about monetary stimulus easing around the world and piled further pressure on investors already struggling to navigate rising protectionism.

The yield on Europe’s benchmark bond, the German 10-year bund, hit a one-month high of 0.39%. US 10-year treasury yields also hit their highest in a month at 2.937%. The yen climbed 0.05% to two-week highs against the greenback at ¥111.34 a dollar.

“It’s all that concern investors have about the move from global quantitative easing to global quantitative tightening.

That fear gets stoked when you have reports such as this,” said Rory McPherson, Psigma Investment Management’s head of investment strategy.

The dollar index rose somewhat, off the two-week lows it hit after US President Trump criticised the US Federal Reserve’s rate hikes and accused the EU and China of manipulating their currencies.

Beijing said it had no intention of devaluing the yuan to help exports.

“We see the latest news on trade policy as pointing to continued high risk of escalation between the US and China, and a renewed focus of the Trump Administration on currency matters,” Goldman Sachs analysts said.

Trump’s warnings about excessive interest-rate hikes also helped the gap between short and long-term treasury yields widen. That “steepening” of the yield curve continued on Monday, with yields on 30-year treasuries more than 0.46 percentage points higher than their two-year counterparts, the biggest gap in nearly a month.

Short-end yields are influenced by US monetary policy, and longer-term government bonds are driven more by inflation and growth expectations.

The yield curve’s flattening, or the shrinking gap between short and long yields, has been seen as a possible sign of an coming recession.

The US president’s new threats to slap duties on all $500bn worth of US imports from China triggered sell-offs across global stock markets, which hit market-leading technology names such as Amazon.com when US markets opened.

The Dow Jones Industrial Average fell 50.4 points, or 0.2%, to 25,007.72, the S&P 500 lost 2.02 points, or 0.07%, to 2,799.81 and the Nasdaq Composite dropped 6.11 points, or 0.08%, to 7,814.09.

MSCI’s gauge of stocks across the globe shed 0.15%, with stocks broadly lower across Europe, Asia and emerging markets.

Investors are bracing for a packed earnings week, including results from Google parent Alphabet, and a meeting between European Commission president Jean-Claude Juncker and Trump to discuss threatened tariffs, which could affect car makers.

“The global economy is still okay, but the risk is now very high, and if trade policies don’t make a U-turn very soon, we’ll see a measurable impact on growth already next year,” UniCredit chief economist Erik Nielsen said.

Concerns about growth affecting demand for fuel had dented crude prices in early trading, but oil rose again as tension worsened between Iran and the US.

US crude rose 0.35% to $68.50 per barrel and Brent was last at $73.52, up 0.62% on the day.

In metals, copper — among the most sensitive to trade tension — rose 0.07% from a one-year low hit last week, trading at $6,151.50 a tonne. Gold, hit by a strong greenback that makes the metal priced in dollars more expensive to foreign buyers, fell further towards one-year lows. Spot gold dropped 0.5% to $1,225.52 an ounce.

Reuters