Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil Hydroworld Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries Bond rally at risk as bank stress diminishes By: FOX Business March 31, 2023 at 11:20 AM EDT As banks stabilize, investors and analysts warn that bond markets will become vulnerable to a reversal should the Fed resume its inflation-fighting efforts. The sharpest rally for U.S. government debt in years has left investors and analysts warning that bond markets are vulnerable to a reversal.Prices for Treasurys leapt after turmoil in the financial sector drove investors to lower their expectations for how high the Federal Reserve would raise interest rates. Now, some worry that with banks stabilizing, a resumption of the Fed’s inflation-fighting efforts could spark declines as rapid as the rally. FED'S FAVORITE INFLATION GAUGE EASES SLIGHTLY IN FEBRUARY, BUT PRICES REMAIN HIGHA fresh bond selloff could mean bad news for stocks, which have managed to eke out gains through three turbulent months of trading so far this year. The S&P 500 has risen 5.5% through Thursday, a climb likely jeopardized if yields rise again, said Keith Lerner, co-chief investment officer at Truist Advisory Services. Higher Treasury yields give investors a lower-risk way to lock in returns.Though rising yields are often associated with an economic growth—a boost to stocks—investors’ expectations for corporate profits already look overoptimistic, he said. "If Treasury yields go up from here, that’s going to cap valuations for stocks," Mr. Lerner said. The yield on the benchmark 10-year Treasury note, which falls when bond prices rise, finished Thursday at 3.55%, down from 3.826% at the end of last year. Yields on shorter-term Treasurys have tumbled even more, with two-year notes posting their first quarterly price gain in two years. STOCK MARKET NEWS: FED’S INFLATION GAUGE, VIRGIN ORBIT CEASES OPERATIONS, BED BATH & BEYOND SPIRALSLast year, the 10-year yield marked its biggest annual increase on record, lifting borrowing costs throughout the economy. Higher government-debt yields pushed up mortgage rates, made it more expensive for companies to invest in their businesses and added to the debt burden shouldered by the federal and local governments.This month’s series of bank failures quickly unwound some of those yield gains, as investors piled into the safety of government debt."Each individual instance of bank stress can be dealt with fairly easily, but as you go from one to the next, it becomes a compounding worry for the market," said Tim Schwarz, a portfolio manager at asset manager Ninety One. "So, over the course of a fairly short period of time, credit investors became quite defensive."A basket of Treasury notes returned 2.4% over the last three months, including price changes and interest payments, according to index data from Intercontinental Exchange. Last year, Treasurys returned minus 13%.21 STATES THREATEN BANKS WITH LEGAL ACTION OVER WOKE POLICIES: 'STAY IN YOUR LANE'Few could have anticipated the competing tides driving trading in recent weeks, said Warren Pierson, co-chief investment officer at Baird Advisors. Preoccupied with stubborn inflation and a resilient economy, many hedge funds had set up bets that Treasury yields would continue to climb, and were caught flat-footed when the failure of Silicon Valley Bank abruptly sent yields lower instead, Mr. Pierson said.In the months ahead, though, those bets could ultimately prove correct. The past week brought few signs of additional bank distress, while the inflation that drove rates higher last year remains a pressing concern. Consumer prices rose 6.0% in February from a year earlier, a pace that has slowed from earlier months but remains well above the Fed’s target.Unemployment—the Fed’s other key responsibility—is still near historic lows around 3.6%, giving the central bank more leeway to focus on suppressing inflation.Calmer markets could restore investors’ expectations for rate increases, Bank of America analysts wrote this week. They projected in one possible scenario that continuing growth and persistent inflation could send the two-year yield back above 5%, a level breached just before March’s bank distress for the first time since 2007.Meanwhile, another wild card is looming over the bond market: A debt-ceiling fight in a deeply divided Congress that—if unresolved by this summer—could disrupt payments to Treasury investors. Even if a crisis is averted, the approach of a potential default could spark volatility, analysts warn.Anxiety about the debt ceiling could exacerbate the market’s recent gyrations, said Amar Reganti, a fixed-income strategist at Hartford Funds who was deputy director of the Treasury’s office of debt management in the early 2010s.CLICK HERE TO READ MORE ON FOX BUSINESS"One would hope the fragility we’ve already seen would serve as a warning that these policy decisions have to be taken seriously and should be resolved as soon as possible," he said. Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
Bond rally at risk as bank stress diminishes By: FOX Business March 31, 2023 at 11:20 AM EDT As banks stabilize, investors and analysts warn that bond markets will become vulnerable to a reversal should the Fed resume its inflation-fighting efforts. The sharpest rally for U.S. government debt in years has left investors and analysts warning that bond markets are vulnerable to a reversal.Prices for Treasurys leapt after turmoil in the financial sector drove investors to lower their expectations for how high the Federal Reserve would raise interest rates. Now, some worry that with banks stabilizing, a resumption of the Fed’s inflation-fighting efforts could spark declines as rapid as the rally. FED'S FAVORITE INFLATION GAUGE EASES SLIGHTLY IN FEBRUARY, BUT PRICES REMAIN HIGHA fresh bond selloff could mean bad news for stocks, which have managed to eke out gains through three turbulent months of trading so far this year. The S&P 500 has risen 5.5% through Thursday, a climb likely jeopardized if yields rise again, said Keith Lerner, co-chief investment officer at Truist Advisory Services. Higher Treasury yields give investors a lower-risk way to lock in returns.Though rising yields are often associated with an economic growth—a boost to stocks—investors’ expectations for corporate profits already look overoptimistic, he said. "If Treasury yields go up from here, that’s going to cap valuations for stocks," Mr. Lerner said. The yield on the benchmark 10-year Treasury note, which falls when bond prices rise, finished Thursday at 3.55%, down from 3.826% at the end of last year. Yields on shorter-term Treasurys have tumbled even more, with two-year notes posting their first quarterly price gain in two years. STOCK MARKET NEWS: FED’S INFLATION GAUGE, VIRGIN ORBIT CEASES OPERATIONS, BED BATH & BEYOND SPIRALSLast year, the 10-year yield marked its biggest annual increase on record, lifting borrowing costs throughout the economy. Higher government-debt yields pushed up mortgage rates, made it more expensive for companies to invest in their businesses and added to the debt burden shouldered by the federal and local governments.This month’s series of bank failures quickly unwound some of those yield gains, as investors piled into the safety of government debt."Each individual instance of bank stress can be dealt with fairly easily, but as you go from one to the next, it becomes a compounding worry for the market," said Tim Schwarz, a portfolio manager at asset manager Ninety One. "So, over the course of a fairly short period of time, credit investors became quite defensive."A basket of Treasury notes returned 2.4% over the last three months, including price changes and interest payments, according to index data from Intercontinental Exchange. Last year, Treasurys returned minus 13%.21 STATES THREATEN BANKS WITH LEGAL ACTION OVER WOKE POLICIES: 'STAY IN YOUR LANE'Few could have anticipated the competing tides driving trading in recent weeks, said Warren Pierson, co-chief investment officer at Baird Advisors. Preoccupied with stubborn inflation and a resilient economy, many hedge funds had set up bets that Treasury yields would continue to climb, and were caught flat-footed when the failure of Silicon Valley Bank abruptly sent yields lower instead, Mr. Pierson said.In the months ahead, though, those bets could ultimately prove correct. The past week brought few signs of additional bank distress, while the inflation that drove rates higher last year remains a pressing concern. Consumer prices rose 6.0% in February from a year earlier, a pace that has slowed from earlier months but remains well above the Fed’s target.Unemployment—the Fed’s other key responsibility—is still near historic lows around 3.6%, giving the central bank more leeway to focus on suppressing inflation.Calmer markets could restore investors’ expectations for rate increases, Bank of America analysts wrote this week. They projected in one possible scenario that continuing growth and persistent inflation could send the two-year yield back above 5%, a level breached just before March’s bank distress for the first time since 2007.Meanwhile, another wild card is looming over the bond market: A debt-ceiling fight in a deeply divided Congress that—if unresolved by this summer—could disrupt payments to Treasury investors. Even if a crisis is averted, the approach of a potential default could spark volatility, analysts warn.Anxiety about the debt ceiling could exacerbate the market’s recent gyrations, said Amar Reganti, a fixed-income strategist at Hartford Funds who was deputy director of the Treasury’s office of debt management in the early 2010s.CLICK HERE TO READ MORE ON FOX BUSINESS"One would hope the fragility we’ve already seen would serve as a warning that these policy decisions have to be taken seriously and should be resolved as soon as possible," he said.