US long-term bond yields rise to highest level in six months

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US long-term bond yields climbed higher again on Thursday, a day after Federal Reserve officials said they expected to cut interest rates much more slowly next year than previously anticipated.

The yield on the benchmark 10-year Treasury, which moves inversely to its price, rose as much as 0.09 percentage points to 4.59 per cent, its highest level in more than six months, after jumping on Wednesday.

The dollar gained a further 0.3 per cent against a basket of peers on Thursday, after soaring to the highest level since November 2022 in the previous session.

The Fed on Wednesday reduced interest rates by a quarter-point but unsettled investors after officials raised their 2025 inflation forecasts and cut back their projections for further rate cuts. It was the central bank’s final meeting before Donald Trump takes office next month.

Concerns about inflation stalling above 2 per cent contributed to Fed officials forecasting just half a percentage point worth of cuts in 2025, down from a full percentage point in their previous projections in September.

“I think the market had anticipated that the Fed would cut rates, but would also continue to give itself optionality for additional cuts for next year,” said Akshay Singal, global head of short-term interest rate trading at Citigroup.

Instead the US central bank had significantly shifted and had given itself more of an option “to keep rates on hold for a period of time” to absorb any impact from looser fiscal policy, he added, predicting the hawkish rhetoric would continue to boost the dollar.

Investors now see a roughly 85 per cent chance that the Fed either refrains from a rate reduction, or cuts rates once or twice next year, according to CME Group data based on federal funds futures.

The S&P 500 was 0.4 per cent higher in afternoon trading on Wall Street, well below earlier levels that had pushed it up more than 1 per cent. The US’s main equities barometer slid nearly 3 per cent on Wednesday, in its biggest fall since August.

The tech-heavy Nasdaq Composite gained 0.3 per cent after dropping 3.6 per cent on Wednesday. Six of the Magnificent Seven tech behemoths — Apple, Microsoft, Alphabet, Amazon, Meta and Nvidia — advanced. However, Tesla, which has been boosted in part by co-founder Elon Musk’s warm relations with president-elect Trump, slipped 2 per cent after sinking 8 per cent in the previous session.

“We’ve been so focused on Trump [in recent weeks] but right now it seems to almost be back to a Jay Powell type stock market,” said Jeff Weniger, head of equity strategy at WisdomTree, referring to the chair of the Fed.

The Fed’s hawkish outlook ricocheted into markets in Europe and Asia on Thursday. Europe’s benchmark Stoxx 600 dropped 1.5 per cent and the UK’s FTSE 100 fell 1.1 per cent. Earlier, markets in India, Japan, South Korea and Hong Kong also closed in the red.

Emerging market stocks were also hit, with MSCI’s broad EM index sliding 1.2 per cent.