US Treasury yields slip from highs as traders brace for stock sell-off

Dow Jones falls the most in a day since 2008 financial crisis triggers losses in Asian markets

Dow Jones falls the most in a day since 2008 financial crisis triggers losses in Asian markets

- The Dow Jones industrial average fell more than 1,000 points, its biggest point drop ever.

On the last working day of last week, the USA indices recorded their biggest weekly losses for the past two years. With stock prices at near all-time high levels, if one seeks a "risk premium" of say 6 per cent, at prevailing bond yield of 7.56 per cent, the stocks need to give 13.56 per cent returns; which does not look feasible.

Oil prices settled lower, pressured by rising US output and other factors.

5-year -10.3 bps @ 2.486%. Other players, such as Wall Street bond king Jeffrey Gundlach, see a lot more selling pressure to come. The book's forecast was right, and more importantly the low rate strategy has succeeded.

Kelly said the signs of inflation and rising rates are not as bad as they looked, but after the market's big gains in 2017 and early 2018, stocks were overdue for a drop. In Europe, the investment-grade ICE BofAML corporate index yield premium over government bonds is just 0.74 percentage points, its lowest level since August 2007. That was its biggest loss since August 2011, when investors were fearful about European government debt and the USA came close to breaching its debt ceiling. The technological index Nasdaq moved down бъ 0.36% to 7,215.12 points.

The Standard & Poor's 500, the benchmark for many index funds, fell 113 points, or 4.1 percent, to 2,648.

"We've enjoyed low interest rates for so long, we're having to deal with a little bit higher rates now, so the market is trying to figure out what that could mean for inflation".

Banks are taking some of the biggest losses. At the end of trading on Friday the Dow stood down 4.1 percent from a record high struck on January 26.

LONDON, Feb 5 (Reuters) - Stock markets were routed around the globe on Monday, with European indexes opening lower and bond yields rising as resurgent USA inflation raised the possibility central banks would tighten policy more aggressively than had been expected.

Investors are also nervous about bond yields as the Treasury Department is due to significantly increase issuance this year to make up for declining Fed purchases.

This is significant and shows the forces pushing and pulling on bond investors. A slowing economy would likely turn the bull market toward bearish.

A model from the Federal Reserve's branch in Atlanta has also showed that the growth rate for the USA itself could climb to above 5% for the first quarter of 2018. Experts have been warning that that wouldn't last forever. Personal debt has lightened since the financial crisis a decade ago. The stock market's recent slide comes during an relatively solid earnings season that investors have cited for support for equities. They recovered those losses within days.

Forward money market rates price in a 10 basis point rate rise from the European Central Bank in early 2019. "It also helps reduce the amount of interest expense the US government has to pay on (large and increasing) federal debt". The 10-year yield hit 3 percent before falling back again. Previous presidents have avoided wrapping themselves in market gains because, as former Obama press secretary Jay Carney tweeted Monday, "1) the stock market is not the economy; and 2) if you claim the rise, you own the fall". And the more bond yields rise, the more will be this opportunity cost.

We think structural global sources of demand for yield, including de-risking pensions, will effectively cap the rise in bond yields and we would be surprised to see the United States 10 year Treasury rise much beyond 3% by the end of 2018.

When the Fed raises rates, the cost of borrowing money increases.

The dollar fell to 109.70 yen from 110.28 yen.

Gold declined 80 cents to $1,336.50 an ounce. In all these years, we've had four official corrections, so not many, but we have also had 60 "panic attacks", as Yardeni likes to call them. Boeing lost 2 percent and Caterpillar was down 1 percent.

"Bund yields are fairly close to 0.80 percent. a key factor in the market".

Ryanair (RYA.I) fell 2.7 percent after the airline struck a cautious tone about fares and potential disruption from pilot unions, though it reported rising profits. Hong Kong's Hang Seng index sank 1.1 percent.

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