Interest rate, oil price surges curb stocks on Wall Street

The yield on 10-year Treasury bonds is within striking distance of 3% and a rise in oil prices has boosted inflation expectations.

Rising interest rates sent a chill through Wall Street, limiting stock gains after a trading session that moved between gains and losses.

The yield on the 10-year US Treasury note climbed to 2.9766% – its highest mark in more than four years.

Investors were waiting to see whether yields picked up enough pace to move past 3%, something that hasn’t happened since 2013.

“Investors are more inclined to sit on their hands to see if there’s a breakout in yields,” says Michael O’Rourke, chief market strategist at the brokerage firm JonesTrading.

Other analysts said the stockmarket would probably be able to support an initial move above 3% but once yields hit at least 3.25%, or more likely 3.5%, a rotation out of equities and into bonds was likely.

“It will look like a bear market in bonds, which should make investors concerned since risk-free assets will be yielding more [than many stocks]," Mr O’Rourke says.

Benchmarks mixed
The Dow Jones Industrial Average ended down 14.25 points, or 0.06%, at 24,448.69. The S&P 500 edged up 0.01% to 2670.29 while the Nasdaq Composite slipped 0.25% 7128.60.

Eric Robertsen, global head of forex, rates and credit research at Standard Chartered, said yields were rising because an increase in commodity prices had raised expectations of higher inflation.

Oil is at its highest since late 2014. US crude futures settled up 0.35% to $US68.64 a barrel. Brent, the global benchmark, rose 0.9%, to $74.71 a barrel, its highest in three years.

The rise in yields also comes amid signs US inflation may be slowly creeping higher and that global central banks will continue to tighten policy in the months ahead.

The gap between 10-year Treasury yields and inflation-linked bonds of the same maturity is at its widest since 2014, suggesting investors are demanding more protection against rising prices.

“We’ve seen an intuitively appealing confluence of factors leading rates higher – central-bank stimulus being unwound, global growth improving, the US tax reform story,” says Lyn Graham-Taylor, senior rates strategist at Rabobank.

The Stoxx Europe 600 rose 0.35%. France’s CAC40 rose 0.5%, Germany’s DAX increased 0.25% and the UK’s FTSE 100 was up 0.4%.

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