The yield on the 10-year note, seen as a proxy for borrowing costs around the world, rose 0.15 percentage points to 3.34%, while the yield on the 30-year note jumped to its highest level since 2014. US$23 trillion was widespread, with the yield on the politically sensitive two-year note climbing 0.11 percentage points to 3.50%. Bond yields rise as bond prices fall. Meanwhile, the tech-dominant Nasdaq Composite fell for a seventh straight session, its longest losing streak since November 2016. The index fell 0.7 percent, while the broader S&P 500 fell 0.4 percent. Those moves, which followed a US holiday on Monday, were accentuated after an Institute for Supply Management survey showed services activity beat economists’ expectations, coming in at 56.9 in August compared with forecasts of 55 ,1 and of July. number 56.7. Any number above 50 indicates expansion. Business growth and new orders accelerated last month, the report said. The data, following a strong labor market report last week, encouraged investors to further upgrade their forecasts for how far and how fast the Fed will raise borrowing costs to tame inflation. Futures markets show investors believe the Fed’s benchmark interest rate will rise to nearly 4 percent by next March. At the end of July, the same measure showed expectations below 3.2%. Markets are pricing in a 75% chance that the Fed will raise interest rates by 0.75 percentage points at its meeting in late September, which would mark the third straight hike of that size. The central bank’s current target range is 2.25 to 2.50%. Citi analysts said the ISM survey “points to a resilient services side of the economy, despite pressure from high prices and continued difficulties in hiring workers. “This should keep the Fed taking another hawkish stance with a [0.75 percentage point] rise in September as inflationary pressure in services looks more indicative of tight labor markets with less supply from commodity crises.’ The strong ISM reading contrasted with a separate survey of the same sector published by S&P Global on Tuesday, which suggested the services sector was in contraction territory. Citi said “the source of the difference is unclear, but the strong ISM reading offsets immediate concerns about a slowdown in economic activity.” Government bond yields have risen in choppy trading in recent weeks after hawkish rhetoric from the Fed and a deepening European energy crisis sent shivers through financial markets. Chairman Jay Powell last month reiterated the U.S. central bank’s commitment to curbing rapid rate hikes, saying the Fed “must keep at it until the job is done.” The European Central Bank will issue its own monetary policy decision on Thursday, with many Wall Street banks expecting a jumbo three-quarter hike. The ECB raised interest rates in July for the first time in more than a decade by an unexpectedly large 0.5 percentage points. Moves in U.S. Treasuries on Tuesday ricocheted into other debt markets. The UK benchmark 10-year gold yield added 0.16 percentage points to 3.1%, having touched 3% on Monday for the first time since 2014, Refinitiv data showed. The cost of ten-year UK government borrowing in the gold market had risen more than 0.9 percentage points last month, the biggest rise since at least 1989. In currencies, Japan’s yen fell as much as 1.7% to ¥142.97 against the dollar, hitting a 24-year low, as tight controls on Tokyo’s yield curve contrasted with surging bond yields in other major economies – reducing the attractiveness of the country’s currency. “The yen’s role as a safe haven has been eroded by Japan’s deteriorating trade position and [fall in the yen] they may have to go further until Japanese authorities intervene,” ING analysts said. In European shares, the regional Stoxx 600 stock index closed 0.2% higher.
