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Stocks Drop as US 30-Year Yield Reaches 2007 High: Markets Wrap

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(Bloomberg) — Stocks slumped while the retreat in Treasuries deepened as investors grow increasingly worried about the long-term effects of historically high borrowing costs.

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The US 30-year yield rose to the highest level since 2007, and 10-year rates rose for a second day touching 4.74%, reigniting calls for the rate on the benchmark bond to hit 5%. The selloff rippled across equity and commodity markets, with S&P 500 index futures down 0.5% or more. West Texas Intermediate crude futures slid, trading below $89 a barrel while the dollar index reached a 10-month high.

“The path to 4.75% is all but assured at this stage,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets, “which begs the question whether 10-year yields will trade with a 5-handle before the Nov. 1 FOMC meeting.”

“Today’s session will be centered on responding to August’s JOLTS job openings report and any implications it has on investors’ understanding of the health of the labor market,” he added.

In US premarket trading, HP Inc. gained after Bank of America analysts raised their rating on the PC maker to buy while McCormick & Co. slid after sales missed estimates hurt by a slow economic recovery in China.

Wall Street strategists are warning about the impact that elevated interest rates on equities, with Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. saying there’s a risk of further stock-market declines. Currently, traders are pricing roughly a one-in-three chance of a rate hike in November.

Read More: Treasury Selloff Fuels Speculation That Bond Vigilantes Are Back

This week’s Treasury selloff came after US lawmakers managed to avert a government shutdown, prompting traders to increase bets that the Federal Reserve will raise rates in November. Atlanta Fed President Raphael Bostic beat the “higher-for-longer” drum Tuesday saying the central bank needed to keep rates elevated “for a long time.”

Comments from other Fed policymakers were even more hawkish, with Cleveland Fed president Loretta Mester saying on Monday that one more rate hike was likely needed and Governor Michelle Bowman urging multiple increases.

This week’s slew of data could determine whether Treasury yields continue to rise. Figures on US job openings are due later in the day, while Friday will bring the crucial monthly payrolls print.

Key events this week:

  • China has week-long holiday

  • US August JOLTS report, Tuesday

  • New Zealand rate decision, Wednesday

  • Eurozone services and composite PMIs, Wednesday

  • ECB President Christine Lagarde gives welcome address at conference, Wednesday

  • US ISM services index, Wednesday

  • France industrial production, Thursday

  • BOE Deputy Governor Ben Broadbent, Riksbank First Deputy Governor Anna Breman participate at panel discussion, Thursday

  • US trade, initial jobless claims, Thursday

  • San Francisco Fed President Mary Daly speaks at the Economic Club of New York, Thursday

  • Germany factory orders, Friday

  • US unemployment rate, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.6% as of 9:11 a.m. New York time

  • Nasdaq 100 futures fell 0.7%

  • Futures on the Dow Jones Industrial Average fell 0.4%

  • The Stoxx Europe 600 fell 0.8%

  • The MSCI World index fell 0.4%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2%

  • The euro was little changed at $1.0473

  • The British pound was little changed at $1.2081

  • The Japanese yen was little changed at 149.88 per dollar

Cryptocurrencies

  • Bitcoin fell 1.3% to $27,467.05

  • Ether fell 0.6% to $1,656.23

Bonds

  • The yield on 10-year Treasuries advanced three basis points to 4.71%

  • Germany’s 10-year yield was little changed at 2.92%

  • Britain’s 10-year yield declined four basis points to 4.53%

Commodities

  • West Texas Intermediate crude fell 0.4% to $88.43 a barrel

  • Gold futures fell 0.4% to $1,840.10 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Julien Ponthus, Jason Scott and Tassia Sipahutar.

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