Bond yields jump, stock futures rise after Powell says the Fed is ready to be more aggressive

In the US government bond market, a sell-off of government bonds intensified, sending interest rates on the 10-year US government bond up 2.341% from 2.315% on Monday. This is the highest return since May 2019, before the Covid-19 pandemic turned up in the financial markets. Interest rates rise when bond prices fall.

Equities, bonds, commodities and currencies have been whipped by volatility over the past month as investors have tried to assess the economic downturn from Russia’s war in Ukraine. Many investors now fear that the war could sustain inflation and hamper economic growth in the United States and Europe.

This week, however, investors got a new curve ball as Mr Powell spoke on Monday, hitting a harsher tone than the one he used when the Fed raised interest rates from almost zero last week. He repeatedly stressed the uncertainty facing the central bank, saying officials are ready to move their policies in a more disruptive direction.

“The message that came out of [Fed] meeting last week is that they are going to tighten [monetary policy] but the US economy is resilient enough to withstand it, ”said Huw Roberts, head of analytics at Quant Insight, a data analytics firm. “The stock market chose to emphasize economic resilience.”

Yesterday’s comments rattled some of those expectations, he said. “The big variable now is the economic growth side of things,” continued Mr. Roberts.

Many investors keep a close eye on the so-called yield curve, which measures the spread between short-term and long-term interest rates and is often seen as a strong indicator of the mood around the outlook for economic growth. Recently, the gap between yields on shorter and longer US government bonds has been widening, raising concerns that the bond market is close to signaling a potential recession.

The two-year government bond yield – which is particularly sensitive to changes in monetary policy – rose to 2.164% on Tuesday from 2.132% on Monday.

To get a better overview of the U.S. economic landscape, investors on Tuesday morning will analyze data from the Federal Reserve Bank of Richmond on manufacturing activity. The financial data due at 10:00 ET, is expected to register an increase from the previous month.

In pre-market trading in New York, bank stocks rose and followed similar movements in Europe. In the US, Morgan Stanley added 1% and Citigroup added 0.7%. In Europe, Société Générale rose 1.8% and Deutsche Bank rose 3.8%.

In other sectors, Nike rose 6% in pre-market trading in New York after it reported revenue that beat analysts’ expectations. Shares in Okta fell 7.1% after a hacker group posted screenshots pretending to show that it had gained access to Okta.com’s administrator and other systems. The company said Tuesday that a preliminary investigation found no evidence of any ongoing malicious activity, and said the screenshots were most likely related to a security incident in January.

In the energy markets, futures for Brent Crude Oil, the international benchmark, rose 0.6% to $ 116.34 per share. barrel in a volatile trading session. Last week, Brent prices fell below $ 100 before reversing and rising higher. Support for an EU-wide ban on buying Russian oil is growing inside the bloc, increasing the possibility of more volatility ahead.

In Europe, the pan-continental Stoxx Europe 600 rose 0.5%, setting the pace for a fifth consecutive session.

In Asia, large indices also ended largely higher. Hong Kong’s Hang Seng rose about 3.2%, while Japan’s Nikkei 225 rose 1.5%. China’s Shanghai Composite rose 0.2 pct.

Write to Caitlin McCabe at [email protected]