Stock and bond prices slide as more central banks raise interest rates

Stocks and government bond prices fell on Thursday as central banks around the world joined the US Federal Reserve in raising interest rates to curb persistently high inflation.

On Wall Street, the S&P 500 closed down 0.85%, extending its decline from the previous session. The Nasdaq Composite, a full set of technology companies more sensitive to changes in borrowing costs, lost 1.37% on Thursday. Europe’s Stoxx 600 index closed 1.8% lower.

Those moves in the stock market come after the Fed raised interest rate rose 0.75 percentage points on Wednesday, marking the third consecutive gain of such magnitude and bringing the central bank’s target range to 3 to 3.25 percent.

At the same time, a closely watched “dot chart” of US rate valuators’ predictions has indicated further gains and no cuts before the end of the year. The chart reflects expectations for the US benchmark rate to rise to 4.4% by the end of 2022 before peaking at 4.6% the following year.

Yields on 10-year US Treasuries, considered a proxy for global borrowing costs, rose 0.19 percentage points to 3.7% as the price of the debt instrument fell. Policy-sensitive two-year yields rose 0.12 percentage points to 4.12 percent.

Line chart of 10-year Treasury yields (%) showing US Treasury yields moving higher

Other government bonds were also under pressure, with the UK’s gold-plated 10-year yield up 0.19 percentage points to 3.5 percent and the equivalent German bond yield up 0.07 percentage points to 1. .97 percent.

In currency terms, the dollar gained 0.54% against a basket of six other currencies, reversing losses spurred earlier in the session as Japan intervened to lift the yen for the first time in 24 years.

The greenback fell earlier as the yen rose 2.6% to 140.36 yen against dollars, after Japan’s top currency official said the government had taken “decisive action” to address a “quick and one-sided” move in the foreign exchange market. Tokyo last bought US dollars to protect the yen in 1998.

The yen’s advance marked a sharp reversal from a loss of 1.3% earlier in the session after the Bank of Japan said it would keep key interest rates negative, widening the gap between policy monetary easing and an upward trend in exchange rates demonstrated by other central banks.

Other central banks joined the week’s tightening trend on Thursday, with the Bank of England raising its key lending rate by 0.5 percentage points to 2.25 percent and the National Bank. Switzerland borrowing costs rose 0.75 percentage points to 0.5 percent. The decision, seen by analysts at ING as “the end of an era”, marks a shift into positive territory for the SNB for the first time since 2015.

Luke Bartholomew, senior economist at Abrdn, an Edinburgh-based asset manager, said the UK rate hike “actually looks pretty small” when compared to larger increases in other currencies. other central banks.

“As a result, the Bank of England continues to look like something behind international banks, which is likely to put sterling under selling pressure,” he added.

Concerns have grown in recent months that interest rates will rise around the world to the point of exacerbating an economic downturn as authorities work to contain the rapid pace of price increases.

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