Morning Deal: Bond Earthquake | Reuters

A screen displays market information on the floor of the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., August 3, 2022. REUTERS/Andrew Kelly/File photo

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A look at the day ahead in the US and world markets from Mike Dolan

With the whole world eyeing Wyoming, global bond markets have shuddered again this week even as equity markets stabilized.

Whatever the signals sent by Federal Reserve chief Jerome Powell or the long list of foreign central bankers at the Jackson Hole conference that begins Thursday, the upward pressure on bond yields has intensified regardless. read more

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Fears of energy-driven inflation are rising again, especially in Europe, as natural gas and energy prices continue to rise and crude oil prices recover.

And while central banks will be forced to keep raising interest rates, the looming recessions this winter raise questions about whether monetary authorities will have the scope or the will to get price increases back on target in the near future. short term.

On top of that, estimates of the bill for governments to ease household and business energy shocks are rising; with some reports this week, it could cost the British government as much as 100 billion pounds ($118.4 billion), most of which would have to be borrowed on the bond and bill markets.

While governments have successfully managed this type of crisis borrowing for the past 15 years, they did so when the cost of such borrowing was falling. With inflation back in the mix, those lending rates are rising sharply while central banks’ “quantitative easing” programs are being reversed as they reverse balance sheet bond holdings and lean on bond markets. instead of supporting them.

That prompts a potentially painful further revision of bond prices and questions whether government debt pressures will allow central banks to put inflation back in the bottle.

US 2-year and 10-year Treasury yields rose to their highest levels since June on Wednesday and have maintained those moves today. Much of the gains were driven by higher inflation expectations over 2, 5 and 10 years, with some citing President Joe Biden’s student debt forgiveness plan as aggravating the price outlook. read more

But the rise in bond yields was global and possibly driven by a surge in British gilts, where 2-year yields hit their highest level since the 2008 crash and the 2-10-year yield curve also inverted. more than at any other time since.

German 10-year yields also hit their highest level since June, with better-than-expected German second-quarter GDP and business surveys for August on Thursday. Read more . The minutes of the European Central Bank policy meetings will be delivered later.

Stocks continued to hold up despite the bond shake and US futures rose ahead of Thursday’s open, with China’s latest $44bn fiscal stimulus also helping the mood in Asia.

The dollar also fell from recent highs, with many citing reports that China’s foreign exchange regulator warned banks not to sell yuan. read more

South Korea’s central bank raised its benchmark policy rate by a quarter percentage point to 2.50%, resuming normal 25 basis point increases after offering an unprecedented 50 basis point hike in July.

2-year G7 yields

Key developments that should provide more direction to US markets later on Thursday:

* US second quarter revision of GDP, core PCE; weekly unemployment claims; Kansas City Fed Manufacturing Activity Index for August

* Annual Jackson Hole Central Bank Forum begins

* ECB July Monetary Policy Meeting Minutes * Earnings: Dollar Tree, Dollar General, Peloton, Affirm, Workday, Marvell Technology

* US Treasury auctions 7-year notes; UK auction gilts from 2025

($1 = 0.8448 pounds)

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By Mike Dolan, edited by Emelia Sithole-Matarise; [email protected]. Twitter: @reutersMikeD

Our standards: the Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, according to the Trust Principles, is committed to integrity, independence and freedom from bias.

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