Picture: ISTOCK
Picture: ISTOCK

New York — A gauge of global equities was poised for its longest losing streak of the year on Wednesday as 10-year US treasury yields once again rose above the 3% mark, stoking concerns about rising costs that could dampen corporate earnings this year.

The benchmark 10-year note yield edged up to 3.033% as jitters about growing federal borrowing spurred more selling in US government debt. Should it climb above 3.041%, its peak in January 2014, it will likely move into territory last seen in mid-2011.

Benchmark 10-year notes last fell 10/32 in price to yield 3.0183%, from 2.983% late on Tuesday.

Yields’ climb above 3% sapped demand for equities for a second straight session after major Wall Street indices dropped more than 1% on Tuesday, when large companies, such as Caterpillar, warned about increased costs from rising metals prices.

The Dow Jones Industrial Average fell 85.53 points, or 0.36%, to 23,938.6, the S&P 500 lost 6.4 points, or 0.24%, to 2,628.16, and the Nasdaq Composite dropped 13.18 points, or 0.19%, to 6,994.17.

Rising debt yields could prompt portfolio managers to weigh moving money into safer fixed-income securities at the expense of riskier assets, such as stocks and emerging markets, as the Federal Reserve continues on its path to raise benchmark US interest rates.

"The markets are reacting to yields moving higher," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. "The new trading range will continue to cap equities from positively responding to good earnings news."

The pan-European FTSEurofirst 300 index lost 0.75% and MSCI’s gauge of stocks across the globe shed 0.59%. MSCI’s index was on pace for its fifth straight decline, its longest losing streak since November.

However, concerns about inflation-induced costs were allayed somewhat by results from Boeing, up 2.1%. The aerospace company’s profit jumped by more than half in the first quarter, surging past Wall Street forecasts, and Boeing said margins had improved at the start of 2018.

Earnings season has gotten off to a stronger start than was initially expected, with the growth rate for the quarter currently at 22%, according to Thomson Reuters data. The earnings growth expectation was 18.5% at the start of April and 12.2% at the start of the year.

All eyes will be on scandal-hit social network Facebook, down 0.3%, when it reports results after the closing bell.

The rally in bond yields pushed the dollar to a four-month high of 91.241 against a basket of major currencies and led investors to consider whether the greenback was breaking out of a prolonged weak spell. The dollar index was last up 0.48% at 91.198, with the euro down 0.44% to $1.2176.

Eurozone bond yields were pulled higher by the US moves, though the prospect of a European Central Bank (ECB) meeting on Thursday ensured a touch of caution. Markets want to know when the ECB plans to wind down its €2.55-trillion stimulus programme. One policy maker, France’s François Villeroy de Galhau, said on Tuesday that the weaker run of recent economic data was expected to pass.

Reuters

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