Global bond markets weaken after lukewarm Treasury auction

US stocks rose and global bond markets weakened on Friday as investors reckoned with a lukewarm Treasury auction result and data showing a rush for cash after weeks of volatile trading.

The blue-chip S&P 500 index climbed 0.6% in New York, while the technology-focused Nasdaq Composite index rose 0.3%.

Yields on the US 10-year note rose 0.04 percentage point to 1.65%, the highest level since Monday, as investors sold off the debt. The rise in yields began Thursday night after the US Treasury Department struggled to sell $ 62 billion in seven-year securities.

“The low seven-year auction is a timely reminder that the environment points to higher rates,” ING analysts said.

Investors have been wary of the inflation risk associated with holding government bonds, as President Joe Biden’s sweeping stimulus package gives hope that the US economy will warm up.

Blake Gwinn, head of US rate strategy at NatWest Markets, said the auction was “not a good sign for demand,” but compared to the “disaster” of the previous seven-year auction in February, which Rekindled fears about the health of the $ 21 billion US government bond market, it was sort of a “relief” for investors.

Ian Lyngen, head of U.S. rate strategy at BMO Capital Markets, called the request “uninspired but not horrific,” adding that the sale “provided little definitive evidence of the mitigation of Treasury bill sponsorship. or an indisputable vote of confidence ”.

Traders invested $ 45.6 billion in cash funds from the week to Wednesday, the largest inflow since April 2020, according to a Bank of America study based on EPFR data. The report also showed $ 1.8 billion poured into inflation-protected Treasury securities, the third-largest inflow on record, as investors continued to position themselves for higher U.S. price growth.

European government bonds weakened, with yields on German and UK 10-year bonds both rising by around 0.03 percentage points.

Elsewhere on the continent, stocks rose. The region-wide Stoxx Europe 600 closed 0.9% higher and the UK FTSE 100 was 1% higher.

“I think what’s interesting in Europe is the contrast between the stock markets and the health issues,” said Sebastian Mackay, multi-asset fund manager at Invesco, adding that recent economic data suggested that European economies continued to grow despite the slowdown in the deployment of Covid-19 vaccinations. .

“We’re probably in a cyclical rally in stocks,” Mackay said. “The rise was fueled by the prospect of the global economy reopening, but valuations are already pretty tight.”

Oil markets have remained volatile as efforts to unblock the Suez Canal and restore global trade routes continue to face challenges.

Paola Rodríguez-Masiu, senior oil market analyst at Rystad Energy, said traders believe the channel blockage “is becoming more important for oil flows and supply deliveries than they had previously concluded” .

Brent, the international benchmark, rose 4.2 percent to $ 64.49 a barrel, while West Texas Intermediate, the US marker, climbed a similar margin to $ 60.99 a barrel.

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