3% Treasury Yield Triggers Puzzling Market Reaction

Posted April 26, 2018

A gauge of world stocks tumbled on Tuesday, erasing early gains as USA bond yields scaled the 3 percent threshold for the first time in four years, while oil prices reversed course after climbing above the $75 per barrel mark.

The Dow Jones Industrial Average traded over 600 points lower before recovering slightly and logging a 424-point decline on the day. The Nasdaq composite dropped 121.25 points, or 1.7 percent, to 7,007.35. That seems a little more reasonable.

Fed officials have largely been sanguine about the stock markets, looking through the pickup in volatility relative to the past couple of years.

The rising yields could impact global stock markets, demonstrated by February's correction, which saw the yield reach 2.9% and help to spark concerns about rising borrowing costs.

S&P 500 futures were recently down 0.3% after the index slid 1.3% Tuesday, hit by a warning from heavy-machinery manufacturer Caterpillar that first-quarter results could be a "high-water mark" for the year and 3M narrowed its revenue and profit forecast for the year amid higher raw materials costs. Westinghouse Air Brake Technologies picked up 3 percent to $90.64.

Several chip makers had flagged near-term concerns about smartphone demand, adding to worries over a USA ban on companies exporting goods to Chinese telecom-equipment firm ZTE. "I don't think investors should be abandoning stocks when the economy is growing and earnings are up roughly 20 percent from a year ago".

BONDS: Bond prices kept slipping.

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The Celtics know that they can't afford to lose game 5 and have to try to stave off elimination in Milwaukee . They got absolutely blitzed in the first halves of both games as they were outscored by a total of 39 points.

In addition to the 10-year Treasury yield hitting 3.0% yesterday, the 2-year note is also at its highest yield since September, around 2.5%. It finished at 2.98 percent on Monday and stood at 2.43 percent at the beginning of the year.

Despite the disappointing outlooks, USA corporate earnings have gotten off to the strong start that was widely anticipated, with the expected growth rate for the quarter now at 21.1 percent, according to Thomson Reuters data. The last time 10-year Treasuries traded above 3% was in April 2011.

Then that pesky stock market got in the way. Shire briefly made big gains last week after Botox maker Allergan said it was considering making its own bid, but the stock dipped again after Allergan decided not to make an offer.

CURRENCIES: The dollar rose to 108.24 yen from 107.60 yen. Similarly, when the 10-year yield rose 1% from July 2016 to November 2016, the bond index fell 4.7%.

ENERGY: Benchmark U.S. crude oil gained 18 cents to $68.82 a barrel. Brent crude, used to price global oils, gained 46 cents to $75.17 per barrel in London. The CAC 40 in France gained 0.2 percent.

The rise in yields overshadowed earnings from Kering and Credit Suisse in Europe, sending the pan-European STOXX 600 .STOXX to its lowest close in a week, down 0.8 percent.

Japan's benchmark Nikkei 225 slipped 0.3 percent to 22,206.51 and Hong Kong's Hang Seng lost 0.8 percent to 30,378.89. Australia's S&P/ASX 200 climbed 0.6 percent to 5,921.60, and South Korea's Kospi lost 0.4 percent to 2,464.14.