• Markets: Stocks managed to clinch a W yesterday after bond yields retreated from earlier highs (more on that below). Tech stocks got a boost from Micron’s strong earnings report—even though Micron itself dipped early in the day before heading upward.

IN A SLUMP

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Government debt is getting dumped like it forgot your birthday. Bond yields around the world hit new multidecade highs yesterday as investors—concerned by inflation and rising fiscal deficits—continued a monthslong, volatile sell-off.

Some of yesterday’s spikes reversed course within hours, but at their peaks:

• The yield on 10-year US Treasury notes hit 5.34%, a level last reached in 2002.
• France’s 10-year yield also rose to its highest point since 2002.
• Britain’s 30-year yield surpassed 6%, which hasn’t happened since 1998.
• Japan’s 10-year yield remained at 30-year record levels after temporarily retreating from that high last week.

As the day wore on, investors started “picking between winners and losers,” per the Wall Street Journal. In an indication of which government debts they may consider relatively safer, yields on US and German bonds fell, while yields on French, Italian, and Greek bonds remained higher. (As a reminder, bond yields move inversely to bond prices.)

Why is this happening?

Bond markets—which influence borrowing costs for corporate financing and mortgages—came under serious pressure after the Iran war started disrupting global energy flows:

• The international benchmark for oil sat just above $70 per barrel before the war began, but now hovers around $100. These elevated prices have exacerbated inflation in individual countries, and investors aren’t sure when it’ll end.
• With the underlying concerns expected to continue, “We would expect volatility to persist,” Rockefeller Capital Management’s chief investment officer told WSJ.

These concerns are compounded in countries with ballooning deficits and high government spending. France, for example, appears borderline radioactive in the bond market as its fragmented political leaders work to rein in its persistent deficit with multibillion-dollar spending cuts.

Though US debt recently surpassed $40 trillion, investors appear a bit more comfortable buying short-term US bonds after softer-than-expected inflation data released this week made a second rate hike this year seem less likely. This morning’s jobs report may give investors a clearer picture of the country’s economy.—ML

      

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