(Bloomberg) — The world’s largest bond market remained under pressure as a massive selloff in Treasuries failed to ease concerns about whether a turning point is in sight after this year’s selloff.
Most read on Bloomberg
Treasuries remained lower after a $70 billion auction of five-year notes “down slightly.” The auction was awarded at 4.659%, a yield slightly higher than the 4.655% yield recorded before the auction as of the auction deadline at 1 p.m. New York time – a sign that demand was slightly lower than expected.
“Good numbers despite a little concession,” said Vail Hartman of BMO Capital Markets. “Treasuries were down ahead of the auction on lighter volumes. Since the result, we have seen little clear change in tracking.
Supported by strong economic data and persistent inflation, traders sought higher yields to hold government bonds as they lowered their expectations for Federal Reserve rate cuts, according to Fawad Razaqzada of City Index and Forex.com. However, higher yields and rates indicate that the cost of servicing the U.S. federal debt is becoming burdensome, he noted.
US 10-year yields rose six basis points to 4.66%. The S&P 500 faltered after a two-day rally. Meta Platforms Inc. fell just hours after its results. Tesla Inc. surged after chief Elon Musk pledged to launch cheaper vehicles. The yen weakened beyond 155 to the dollar, fueling nervousness over intervention.
Interest rates staying high for longer, along with economic uncertainty and geopolitical unrest have diminished the appeal of some of the stock market’s cheaper strategies.
This month, investors withdrew some $200 million from value-based exchange-traded funds, according to data compiled by Bloomberg Intelligence. In contrast, growth stocks have attracted more than $3 billion in capital flows – despite a fragile stock market that raises fears of further declines to come. This decline in interest in cheap stocks follows the lackluster performance of common value products.
For Katrina Dudley of Franklin Templeton, valuations are fair: companies must therefore continue to generate profit growth.
“For the overall market, we will be watching the forecast for the rest of the year closely,” said Matt Palazzolo of Bernstein Private Wealth Management. “While it is good to know how businesses performed between January and March, it is now more important to have an idea of executives’ expectations for the rest of the year.”
With several high-profile earnings reports this week, Nationwide’s Mark Hackett says these numbers will further test investors’ comfort.
Although the cohort of seven mega-caps has performed well over the past two years due to their superior earnings per share growth relative to the broader market, this advantage could diminish in 2024 and even more significantly in 2025, Hackett noted.
“The Magnificent Seven are no longer as powerful as they once were, and this enlargement of the market is creating pockets of…
