U.S. bond yield hits seven-year high, boosting dollar, hurting stocks

Lloyd Doyle
May 16, 2018

The uptick in USA yields which unnerved equity markets and sent Wall Street shares significantly lower on Tuesday.

The dollar index that measures the greenback's strength against a basket of six major currencies gained 0.2 percent to $93.41, hovering close to its highest level since December 22 of 93.45 achieved on Tuesday.

Gold has lost about $10 since the US-data release.

The euro also fell sharply against the safe-haven Swiss franc, to a five-week low of 1.1799 francs. The dollar's rise also helped send gold to its low point for the year.

On the economic front, advance estimates of U.S. retail and food services sales for April were 497.6 billion U.S. dollars, an increase of 0.3 percent from the previous month, in line with market expectations, said U.S. Commerce Department on Tuesday.

Benchmark 10-year notes US10YT=RR last fell 20/32 in price to yield 3.0686 percent, from 2.995 percent late on Monday, after reaching 3.095 percent, its highest point since July 2011.

The two-year yield US2YT=RR, which is most sensitive to traders' view on Federal Reserve policy, hit its highest since August 2008.

"The implication is that means inflation has more upside potential, which means the Fed is more likely than not to hike four times this year, versus what the market was pricing in a month ago, which is two to three times", Mackay said.

Oil prices ended a shade firmer after retreating from multi-year highs hit early in the day, supported by concerns that USA sanctions on Iran are likely to restrict crude exports from one of the biggest producers in the Middle East. "But against the yen, its advance could stall if the negative impact of higher yields on equities is prolonged", said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. The country's GDP growth fell by 0.6 percent in the first quarter, which is its first economic weakness in nine quarters, amid losses in investment and consumption, and weaker export growth. United States crude fell 0.07% to $70.91 a barrel and Brent was last at $78.94, up 0.91% on the day.

The euro edged up 0.1 per cent to $1.1934, but remained below Monday's high of $1.1996, which was the common currency's highest level since May 3.

The Australian dollar was up 0.3 percent at $0.7491 after sliding 0.7 percent overnight.

Other reports by Iphone Fresh

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