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Major market averages trade mixed on Wednesday following the tumble in the previous session when sharp rate moves up cut into risk appetite.
Early on and the Nasdaq Composite (COMP.IND) was +0.3%, the S&P 500 (SP500) was -0.1%, and the Dow (DJI) was -0.3%.
Overnight the 10-year Treasury yield (US10Y) neared 4.9%. (See how yields are trading now across the curve.)
“We’re at risk of repeating ourselves on a daily basis now, but the last 24 hours saw the relentless bond sell-off continue, with yields rising to fresh multi-year highs on both sides of the Atlantic,” Deutsche Bank’s Jim Reid said. “That included the 10yr Treasury yield, which closed at a post-2007 high, whilst the 10yr real yield also hit a post-GFC high of 2.44%.”
“But unlike some previous days, the sell-off was evident across several asset classes, with sizeable losses across equities and credit as well.”
ING said the bond selloff is “turning into a rout.”
“It’s messy out there,” ING analysts wrote. “It’s not often you get a 10bp uplift in the 10-year yield in one day. We had one yesterday. And we’ve had over a 50bp upmove in the past three weeks.”
That “5% level could be with us quite quickly. It’s clear also that Treasuries are a dominant driver out there. It’s pulling other yields higher, is hurting equities, and is pretty immune to influence from risk off.”
The 10-year Treasury (US10Y) was down 1 basis point to 4.79% after peaking at 4.887% overnight. The 2-year yield (US2Y) was down 3 basis points to 5.12%.
“Typically, a severe enough risk-off event would put some counterflows back into Treasuries. And there have been some,” ING said. “Right through the rise in yields in the past couple of months there have, in fact, been net inflows into Treasuries. But this has not been enough to dominate price action. In fact, prices have moved first, not so much in reaction to flows, but in anticipation of them. And of course in reaction to data that continues to show the US economy continuing to defy recession worries.”
The odds of a quarter-point Fed hike rose after Tuesday’s surprise rise in JOLTS openings. Fed funds futures now put the chances of a rise at 45%, having topped out at 57% yesterday. The 6-month Treasury bill yield (US6M) topped 5.56% before easing back.
On the data front, ADP’s measure of September private employment came in at 89K versus the expected 150K number.
Additionally, August factory orders came in at -2.1% versus the expected reading of 0.2%.
At the same time the ISM September services index arrived at 53.6 compared to the anticipated 53.5 level.