By Iain Withers and Tom Westbrook
LONDON/SINGAPORE, Aug 19 (Reuters) – Global bond yields stabilised on Wednesday near their highest levels in decades on fears of swelling sovereign debt, while oil futures gained for a fourth straight day on receding prospects of a deal to end the conflict in the Middle East.
European stocks were broadly flat and Wall Street futures pointed to gains of about 0.1%, after stocks across Asia fell on concerns about the outlook for semiconductor companies. South Korean shares closed nearly 6% lower, posting their biggest one-day drop in three weeks.
Long-term borrowing costs from the U.S. to Germany and Japan have soared recently as investors fret over ballooning government debt and high inflation, in part driven by the Iran war pushing up oil prices.
The yield on the U.S. long bond steadied around 5.27% on Wednesday after hitting its highest in nearly 20 years on Tuesday, at 5.3371%, while German and French debt likewise stabilised.
Yields go up when bond prices go down and the selloff matters because long-end sovereign yields act as an anchor for the price of nearly every other asset in financial markets, including mortgage rates.
“If you combine a sticky inflation environment and excessive government spending, then the natural move for bond yields is higher,” said Jason Da Silva, director of global investment strategy at Arbuthnot Latham, adding that he expected more frequent bouts of pressure from bond investors.
“I think this is going to be the norm going forward. There are no aggressive measures by any Western governments to curb spending.”
The climb of Japan’s benchmark 10-year sovereign yield toward 3%, touching a three-decade high, is also a warning sign for global debt markets that for years have depended on low Japanese rates driving a constant flow of Japanese investment abroad.
The inflation outlook also remains troubling with few signs of progress toward a deal to open the Strait of Hormuz. Oil futures were last up around 0.6% on the day, with light crude at $85.48 per barrel and Brent crude at $91.62 per barrel.
Later on Wednesday the U.S. Federal Reserve releases minutes from the July meeting where it left rates on hold, but Chair Kevin Warsh spooked markets by offering few clues about whether and how the central bank might respond to persistent inflation.
The U.S. is also set to sell $16 billion in 20-year debt.
“Governments face a real choice between spending discipline and materially higher borrowing costs, and markets will keep testing which one they choose,” said Nigel Green, CEO of financial advisory deVere Group.
STOCKS WOBBLE, DOLLAR STEADIES
In China, shares in the world’s biggest humanoid-robot maker, Unitree, soared 600% on debut, a listing that was more than 8,000 times oversubscribed by retail investors.
The bond selloff and reports that Anthropic’s annual revenue run-rate topped $65 billion at the end of July, which was behind some market hopes, were triggers for selling chipmaking shares.
The risk-averse mood has lent a little support to an otherwise softening dollar in currency markets, though moves were small. The U.S. dollar index was last down 0.2% at 99.405. [FRX/]
The Canadian dollar rose a tad after U.S. President Donald Trump paused imposing a 50% tariff on Canadian goods for three days, saying the countries had reached a deal. [CAD/]
The euro edged 0.25% higher to $1.160325 and the yen traded at 159.1 per dollar, just in the shadow of 160 — a level investors see as a potential trigger for another round of official intervention.
European inflation data is due later on Wednesday along with earnings at Lowe’s, Target and TJX which will be closely watched after softer-than-expected U.S. retail sales data landed last week.
British inflation rose in July by 2.9%, data showed, in line with economist forecasts as it was pushed higher by an increase in household energy bills.
(Reporting by Tom Westbrook and Iain Withers; Editing by Shri Navaratnam and Sam Holmes)
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