Treasury yields extended multiyear highs and global stocks slid Thursday, as increased expectations of tighter central bank policy and a fresh run-up in oil prices reverberated through markets.
Government bonds across the world sold off sharply after U.S. PMI data on Wednesday showed the economy was unexpectedly robust, giving the Federal Reserve more room to raise interest rates. A shaky auction of five year Treasury notes Wednesday also added upward pressure on yields. Markets are currently pricing a 70.9% likelihood of a quarter-point rate hike when Fed policymakers meet next month, up from nearly 50% on Tuesday.
Oil prices--which have moved in lockstep with Treasury yields in recent weeks--climbed higher as U.S.-Iran talks showed little sign of progress. Prices were given an extra boost by reported comments from an adviser to Iran's Supreme Leader. Military commander Yahya Rahim Safavi said Tehran was considering expanding the Middle East war into the Indian Ocean, according to an AFP report citing Iran's Fars news agency. Brent crude front-month contracts for November delivery added 2% to trade above $105 a barrel, while West Texas Intermediate crude rose by 1.6% to $93.65 a barrel.
Ten-year Treasury yields continued to rise in erratic trade Thursday, adding another 2.5 basis points to reach 5.141%--on track to settle above their previous highest close in July 2007. Yields on 30-year bonds climbed 3.5 basis points to trade at 5.437%, their highest intraday level since June 2004. Japanese 10-year yields hit highs not seen since 1996, while eurozone bond yields also rose.
Higher borrowing costs weighed on global equities. In the U.S., Nasdaq futures led the losses, dropping 1% after the index hit new records earlier in the week. Technology stocks fell across hardware and software in premarket trading, with Meta shares down more than 2%. Chip makers Intel and Micron fell 3% and 1.9%, respectively, premarket.
Futures for the Dow Jones Industrial Average were 0.35% lower, while S&P 500 futures fell 0.6%. MGM Resorts shares slid over 9% premarket after Barry Diller said he is withdrawing his bid for the company. Stocks fell across Asia, while banking and energy-sensitive equities led losses in Europe. The Stoxx 600 slipped 0.2%.
The prospect of further rate hikes strengthened the dollar, which hit an eight-week high against a basket of currencies. Nonyielding assets weakened, with bitcoin's recent rally stalling as the digital asset fell below $84,000. Gold futures also slipped, now trading under $4,300 a troy ounce in New York for the first time since early August.
For the day ahead, a summit between President Trump and Chinese leader Xi Jinping will be in focus. The two countries agreed to extend a bilateral trade truce until mid-January, Treasury Secretary Scott Bessent said Wednesday. However, expectations for broader agreements on trade are limited, though investors will watch for signs of any co-operation on artificial intelligence.
Several Fed policymakers are due to speak Thursday, while U.S. data releases include new home sales for August. With Treasurys continuing to sell off, investors will watch the $44 billion auction of seven-year notes and the Treasury's $6 billion buyback auction of 20- and 30-year bonds later Thursday.
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