Global government bond markets swung erratically on Thursday, a day after investors were jolted by a sharp rise in yields tied to rising economic growth expectations and persistent inflation worries.
European and U.S. markets were subdued in early trading on Thursday, but fresh data provided another indicator of hotter-than-expected economic activity and prompted a renewed sell off before the afternoon.
Reports of a potential path to reopening the Strait of Hormuz led to another sharp reversal, lowering yields, before yields drifted higher again in afternoon trading.
The 10-year U.S. Treasury yield, which underpins corporate and consumer borrowing costs across the globe, cemented itself at its highest level in more than two decades, having traded around that level over the past week. The yield on the 10-year U.S. Treasury note recorded on Wednesday its biggest one-day jump since last year.
Also on Thursday, the 30-year Treasury yield extended its rise from Wednesday, with the yield moving close to 5.5 percent, its highest level since 2004. Yields across Asia also rose sharply. The five-year Treasury yield rose above 5 percent, to its highest since 2007.
Thursday’s moves came after data showed that new home sales increased more than 6 percent in August from the month prior, far exceeding expectations of around 1 percent growth and reversing a sharp contraction in July.
A measure of manufacturing activity from the Federal Reserve Bank of Kansas City also showed surprising strength, adding to data on Wednesday that had also showed manufacturing activity exceeding expectations.
Oil prices also rose on Thursday, further fueling inflation concerns. The price of Brent crude, the global benchmark for oil, rose 4.2 percent to $107.45 a barrel. The Brent price had fallen below $100 earlier in the week.
Stocks also swung higher and lower, with the S&P 500 index moving between small gains and a loss of roughly 0.5 percent, before ending the day roughly flat to where it stsrted.
The war in Iran, which has interrupted crucial shipments from the Persian Gulf, has pushed energy prices higher and stoked inflation concerns. Ship operators in the Persian Gulf remain wary of sending vessels through the Strait of Hormuz, the vital waterway between Iran and Oman. Advances by the Iranian-backed Houthi militia in Yemen have threatened oil shipments through the Red Sea, an alternative route to the Persian Gulf used by Saudi Arabia to get oil out to global markets. Saudi authorities had to temporarily shut the critical East-West pipeline that shuttles oil from the Persian Gulf to the Red Sea, blaming a drone attack by an Iranian-backed Iraqi militia.
Central banks around the world have responded by raising benchmark short-term interest rates to slow growth and contain rising prices.
Last week, the Federal Reserve raised rates a quarter of a percentage point, to a range of 3.75 to 4 percent, citing the need to counter inflation. It was the first increase in rates in more than three years. Central banks in Japan and Europe also raised rates this month.
While higher yields can signal economic strength, they also make it more expensive for businesses and consumers to borrow money. The rates of mortgages are particularly sensitive to the increase in certain bond yields. The average 30-year, fixed-rate mortgage rate, the most common home loan in the United States, breached 7 percent on Thursday, a level not seen in nearly two years.
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