Global stocks sold off on Wednesday as a renewed bond market rout pushed long-dated US yields to 24-year highs. The S&P 500 and Nasdaq each slipped 0.2% and the Dow fell 0.7%, even after a strong 10-year Treasury auction and Fed meeting minutes eased some of the pressure on borrowing costs.
A sea of red swept across global markets on Wednesday as the bond market selloff picked up again, lifting long-dated US Treasury yields to 24-year highs. A strong 10-year Treasury auction and the release of the Federal Reserve's latest policy minutes eased some of that upward pressure, but not enough to stop equities from falling.
Losses spread from Asia to Wall Street
Japan's market fell 1% and South Korea dropped 2%, while Europe slipped 1% and the UK fell 0.8%. On Wall Street, the S&P 500 and Nasdaq each declined 0.2% and the Dow lost 0.7%.
Within the S&P 500, seven sectors fell and four rose, with industrials down 2% and healthcare up 1%. Caterpillar dropped 6% and SpaceX fell 2.6%, while Moderna gained 5% and Micron Technology rose 4%. Gold slipped 1% and other precious metals fell 3% as the dollar climbed back to Monday's 17-month high.
Fed minutes show policymakers split on rationale
The Fed's rate hike last month was unanimous. But according to Reuters, meeting minutes published Wednesday showed policymakers were "divided over rate-hike logic" in September. Some saw it as a precautionary move against energy-driven price pressures, while others viewed it as the first step against demand-driven inflation. That split matters because it signals less certainty heading into the Fed's October 28-29 meeting, even though the central bank rarely stops tightening after just one hike.
Term premium hits a 12-year high
The US term premium — the extra compensation investors demand for holding longer-dated debt — has surged 40 basis points in the last two weeks. It touched a 12-year high of 96 basis points on Monday. Bank of America analysts flagged US fiscal and funding issues, the European Central Bank's willingness to stabilize bond spreads, and long-end Japanese government bond dynamics as the key factors to watch into the fourth quarter. European bonds stayed under pressure too, with the French-German yield spread widening 10 basis points to 138 basis points.
AI financing draws fresh scrutiny
News that SpaceX is in talks to raise $40 billion from banks and asset managers to buy Nvidia's AI chips has renewed attention on the debt and circular financing behind the AI buildout. Morgan Stanley estimates more than $3 trillion of off-balance-sheet debt is tied to data center construction and related investment. Investors including Jim Chanos, Steve Eisman and Michael Burry have warned that the opacity of these arrangements could spell danger.
Markets now turn to the $22 billion 30-year Treasury note auction and a run of Fed speakers for the next signal on where yields head next.
Source: Investing.com
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