A jump in US bond yields raised questions about the bull market in stocks on Wednesday, with the 10-year Treasury yield holding at around a one-year high and equity futures flatlining.
Meanwhile, the US benchmark WTI oil price stayed above $60, as freezing weather continued to batter Texas.
Asian stocks were mixed overnight, with Hong Kong’s Hang Seng rising 1.1% but Japan’s Nikkei 225 slipping 0.58%. The Europe-wide Stoxx 600 fell 0.42% in early trading while Britain’s FTSE 100 slipped 0.35%.
The bitcoin price rocketed to an all-time high of more than $51,700, taking year-to-date gains to more than 75%.
Record amounts of fiscal and monetary stimulus, combined with expectations that coronavirus vaccines will aid a rapid economic recovery, have pushed up bond yields to their highest in a year.
The US 10-year Treasury note yield rose to a one-year high of 1.33% on Tuesday evening, before slipping back. It was down 1.5 basis points to 1.284% on Wednesday morning just before 6am ET.
Yields, which move inversely to prices, have risen because investors expect stronger growth and inflation and therefore demand a higher return on their investment.
Yet higher yields weigh on the stock market, as investors can find increasingly good returns in government bonds, which are extremely safe investments.
“We are witnessing a sharp sell-off in rates with yields moving aggressively higher, which could spread into trouble in other asset classes like stocks, FX and even cryptos,” said Neil Wilson, chief market analyst at trading platform Markets.com.
However, Kansas City Federal Reserve president Esther George sounded unfazed by higher yields on Tuesday.
“I don’t know that, based on the levels that we’ve seen so far, that [rise] poses any challenge to the Federal Reserve’s monetary policy,” George said in a talk at the University of Missouri-Kansas City, MarketWatch reported.
Elon Musk’s Tesla sparked the latest rally earlier in February by announcing it had bought $1.5 billion of bitcoin the previous month. BNY Mellon and Mastercard have announced moves into crypto, giving bitcoin more legitimacy.
WTI crude oil was up 0.82% to $60.55 on Wednesday morning, around a one-year high, as higher demand and lower supply thanks to freezing weather in Texas lifted prices. Brent crude was 1.07% higher at $64.03.