The US Treasury market experienced a significant sell-off as traders awaited Federal Reserve Chief Jerome Powell’s remarks on interest rates. Yields on five-year to 20-year Treasuries rose by 10 basis points on that day, with the 10-year benchmark bond reaching 4.68%. This sell-off in global bonds gained momentum due to the temporary US government shutdown reprieve, leading traders to increase their expectations of a November rate hike by the Fed. The likelihood of a November move rose to roughly one-in-three, up from the 25% probability priced on Friday.
Despite a measure of US factory activity contracting in September, the S&P 500 managed to gain slightly, while the tech-heavy Nasdaq 100 saw a 1% rise. The focus in the markets shifted back to interest rates, as rising oil prices added concerns about inflation. The dollar also strengthened against its Group-of-10 peers, enjoying its best quarter in a year. Gold prices, on the other hand, slipped to seven-month lows due to the pressure of surging bond yields.
This week, key events include China’s week-long holiday, discussions on climate risk moderated by New York Fed President John Williams, speeches on economic outlook by Cleveland Fed President Loretta Mester and Atlanta Fed President Raphael Bostic, and the release of various economic data. Overall, the report highlights the impact of Powell’s remarks on the US Treasury market, the influence of interest rates on stocks and currencies, and the market reactions to different economic indicators and geopolitical events.
