(Bloomberg) — A slide in bonds dragged down stocks as another weak sale of Treasuries raised concern that funding the US deficit will drive up yields at a time when the Federal Reserve is in no rush to cut rates.
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The US sold $44 billion of seven-year notes at 4.650% — above the pre-auction level of 4.637%. That’s just a day after two other US offerings totaling $139 billion saw lackluster demand. Those bond sales are exerting a growing sway over several asset classes, underscoring how the uncertainties over Fed policy continue to grip markets as inflation shows little signs of moderation.
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“The “set-up’ right now is quickly becoming a concern,” said Matt Maley at Miller Tabak + Co. “Not only are yields rising again in the US, but they are moving higher in other parts of the world. That is not good news for a stock market that’s trading at 22 times forward earnings.”
The S&P 500 dropped below 5,300. American Airlines Group Inc. tumbled on a disappointing outlook. UnitedHealth Group Inc. led industry losses after saying it sees a “disturbance” coming as states pare enrollees in their Medicaid programs. Marathon Oil Corp. surged as ConocoPhillips agreed to acquire it in a $17 billion deal. BHP Group abandoned its bid for Anglo American Plc.
Treasury 10-year yields climbed seven basis points to 4.62%. European bond issuance this year has topped the €1 trillion ($1.1 trillion) mark more than a week before the previous record. German bond yields hit a six-month high as inflation accelerated. Australia’s latest inflation reading suggested rates will remain high for now.
The US economy expanded at a “slight or modest” pace across most regions since early April and consumers pushed back against higher prices, the Fed said in its Beige Book survey of regional business contacts.
“Consumers are becoming more price-conscious, likely putting pressure on profit margins,” said Jeff Roach at LPL Financial. “We should expect more discounts and incentives as some…
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