(Bloomberg) — The world’s biggest bond market extended this month’s selloff as solid economic data and hawkish Fedspeak spurred bets interest rates will be higher for longer.
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Treasuries fell across the US curve — with two-year yields once again approaching the 5% mark. When asked about the possibility of hiking, Fed Bank of New York President John Williams said — it is “not” his baseline expectation — but added that it’s possible, if warranted. Equity traders took that in stride, with the S&P 500 rebounding from nearly “oversold” levels.
“Most of the data this week shows the economy is still firing on all cylinders,” said Chris Larkin at E*Trade from Morgan Stanley. “That’s going to be a challenge for the Fed’s rate-cutting plans.”
Treasury 10-year yields advanced five basis points to 4.64%. The S&P 500 hovered near 5,040. Micron Technology Inc. is poised to get $6.1 billion in grants from the Commerce Department. Taiwan Semiconductor Manufacturing Co. scaled back its outlook for a chip market expansion. Netflix Inc. is due to report results after the close.
Jobless claims remained subdued, consistent with a healthy job market. Separately, the Philadelphia Fed factory index topped estimates. While existing-home sales fell, the pace was roughly in line with the median forecast of economists.
Market-implied expectations for Fed rate cuts — which have collapsed in the past two weeks — declined further this week after Chair Jerome Powell signaled policymakers will wait longer than previously anticipated to ease policy. An initial quarter-point reduction remains priced in for November.
International Monetary Fund Managing Director Kristalina Georgieva indicated she still sees the potential for the Fed to lower interest rates in 2024.
“The Fed is doing the right thing” by standing pat for now, Georgieva said in an interview Thursday with Bloomberg Television. “The Fed is not yet prepared, and rightly so, to cut. I don’t think we should gear up for rapid declines in interest rates.”
The market’s biggest worry right now is inflation, which is re-accelerating and throwing cold water on the idea of any rate cuts in 2024, let alone one or two, according to Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management.
“We are firmly in the camp of no rate cuts in 2024,” he said. “We believe investors should prepare for a higher for longer regime when it comes to both inflation and interest rates and that investment portfolios should be positioned for these dynamics for the foreseeable future.”
Read: Less Dovish Fed Comes Into Line With Market
“With rate cuts delayed, rather than canceled, in our view, we still expect the yield on the 10-year US Treasury to end the year around 3.85%, said Mark Haefele at UBS Global Wealth Management. “Once the Fed begins cutting rates this year, the bond market will likely continue to price a sequence of further cuts into 2025 and beyond.”
While timing the market is hard, investors can more confidently add duration exposure, according to Bank of America Corp. strategists led by Mark Cabana, who recommend “going long” five-year Treasuries.
The trade is supported by “Fed unlikely to hike, risk asset sensitivity to rates and cleaner duration positioning,” they noted.
Corporate Highlights:
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Infosys Ltd. forecast tepid sales growth for the year, a sign that overseas clients are limiting tech spending until the global economy picks up speed.
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D.R. Horton Inc. increased sales expectations for its full fiscal year as the US housing market heads into its key spring selling season.
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Alaska Air Group Inc. expects second-quarter profits will top analyst estimates, signaling that the carrier is recovering from a near-catastrophe on one of its planes that triggered the temporary grounding of a key Boeing Co. aircraft model.
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Las Vegas Sands Corp. said remodeling at an entertainment center and a hotel in Macau will crimp results this year..
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EBay Inc.’s embrace of artificial intelligence has turned the stock’s most bearish analyst into its biggest fan, with Morgan Stanley seeing a further 25% gain for the shares over the next year.
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DNA testing firm 23andMe Holding Co.’s Chief Executive Officer Anne Wojcicki said she’s considering taking the struggling company private, less than three years after it began selling shares.
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Blackstone Inc. collected more fees from big retail funds and credit strategies during the first quarter, compensating for the slower pace of deal exits.
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Ally Financial Inc.’s first-quarter results topped Wall Street forecasts.
Key events this week:
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Japan CPI, Friday
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BOE Deputy Governor Dave Ramsden and ECB Governing Council member Joachim Nagel speak, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 rose 0.5% as of 12:03 p.m. New York time
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The Nasdaq 100 rose 0.3%
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The Dow Jones Industrial Average rose 0.6%
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The Stoxx Europe 600 rose 0.2%
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The MSCI World index rose 0.5%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro fell 0.1% to $1.0661
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The British pound was little changed at $1.2465
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The Japanese yen fell 0.1% to 154.61 per dollar
Cryptocurrencies
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Bitcoin rose 4.4% to $63,562.17
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Ether rose 3.3% to $3,070.4
Bonds
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The yield on 10-year Treasuries advanced five basis points to 4.64%
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Germany’s 10-year yield advanced three basis points to 2.50%
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Britain’s 10-year yield advanced one basis point to 4.27%
Commodities
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West Texas Intermediate crude was little changed
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Spot gold rose 1% to $2,383.84 an ounce
This story was produced with the assistance of Bloomberg Automation.
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