(Bloomberg) — Stocks and equity futures fell, while Treasuries slid as the prospect of higher interest rates continued to mount on the back of the Federal Reserve’s battle against inflation.
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An Asia equity benchmark was headed for its second straight weekly fall, with some of the biggest losses posted by Chinese tech shares. Futures on US and Europe equity contracts were also in the red. The picture was different in Japan, with stock gains supported by positive earnings from chipmakers.
Treasury yields continued their climbs across the curve after investors pushed yields on the two-year Treasury above the 10-year’s by the most since the early 1980s, a sign of flagging confidence in the economy’s ability to withstand additional Fed hikes.
Next week’s inflation update from the US offers a relevant potential inflection point in the Treasury yield curve, according to Benjamin Jeffery and Ian Lyngen, strategists at BMO Capital Markets Corp. “Our expectations are that the market takes away sufficient angst regarding the prevailing inflation trend to press the inversion trade even further,” they wrote in a note.
Market pricing for US rates to peak in July inched higher as investors digested the fresh data and the drumbeat of central bankers signposting further tightening ahead. Fed Bank of Richmond President Thomas Barkin said it’s important to continue hiking to rein in inflation. His comments echoed sentiment from four Fed officials who spoke Wednesday.
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Maybank Group Wealth Management is positive on the long-end of the Treasuries curve despite the inflation-induced volatility. “But at the same time the downside risk to growth, the deteriorating growth outlook will also put a damp on how much the 10-year can increase,” Eddy Loh, chief investment officer, said on Bloomberg Television. “While there could be some near-term volatility for 10-year Treasury yield, it would likely trend lower during the course of the year and remain sustainably below 3.5%.”