As market participants bet that ongoing elevated interest rates will impede the global economy and reduce demand for riskier assets, the crisis in government bond markets grew worse early on Wednesday, with benchmark US yields reaching new 16-year highs.
The Treasury rout later subsided on a softer-than-expected US private payrolls report, which helped equities on Wall Street recover from a violent sell-off on Tuesday that sent the three major US market indexes to closing lows in four months.
According to the CME Group's FedWatch Tool, market projections for a rate increase in November have decreased from 28.2% to a 23.7% possibility on Tuesday. Futures indicated that the Fed's overnight rate would remain above 5% throughout next July following a retreat from Tuesday's pricing, which maintained that level through September 2024.
The pan-European STOXX 600 index, a measure of stocks throughout the globe with a US focus from MSCI, closed down 0.14%.
Wall Street stocks increased in value. The S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average all saw gains, at 0.81%, 1.35%, and 0.39%, respectively.
Following the collapse in American bonds, European bonds saw a sell-off on Tuesday, with Germany's benchmark 10-year bond yields reaching above 3% for the very first time since 2011, then falling to 2.928%. The nation's 30-year yield reached a new 12-year high before declining.
Even though the Bank of Japan offered to buy $4.5 billion worth of notes on Wednesday, the 10-year yield in Japan increased by 4.5 basis points to a decade peak.
This week, the yields on government bonds have also increased in Australia, Canada, and the UK.
The American dollar gained strength overnight against the euro as a result of the movements in the bond market. A measure of the value of the dollar relative to a group of other currencies, the dollar index, fell by 0.38%.
Earlier, MSCI's largest index of Asia-Pacific equities outside of Japan plunged to 11-month lows, losing 1.1% for the second consecutive day of losses of more than 1%.
Because their movement has not coincided with much of a change in market gauges of expectations for inflation, US rates in real terms, which subtract inflation, are also at nearly 15-year highs.
March of the dollar
On Wednesday, the yen was trading stronger, at around 150 per dollar, after a surprising but short gain in the previous trading session sparked rumors that the Japanese government may have interfered to boost the yen.
On Tuesday, the Japanese yen crossed the 150-per-dollar mark before abruptly rising to 147.3. Tokyo did not provide a confirmation, and neither the senior currency diplomat nor the finance minister of Japan responded to the move.
The yen was recently trading at 149.01 per dollar.
Sterling hit a seven-month low of $1.20535, while the euro dropped to its lowest level in ten months of $1.0448 due to the dollar's march.
The final price of the euro was $1.18, an increase of 0.5% from the previous day. At $1.212, the pound had increased in value similarly.
The FX market is currently sitting by, watching and waiting for the Treasury market to make a breakthrough.
Rising long-term Treasury bond yields, according to Fed officials, are not yet cause for concern.
As a result of news that Russia would relax its ban on diesel in the days to come and US government data that showed low demand for gasoline, oil prices fell by over five percent.
US crude futures ended the day down $5.01 at $84.22 per barrel, while Brent ended the day down $5.11 at $85.81 per barrel.
Gold prices declined for the eighth session in a row as investor sentiment was dampened by high Treasury yields and anticipation that the Fed would maintain higher interest rates for longer.
US gold futures ended the day at $1,834.80 per ounce, down 0.4%.