High Treasury Yields Seen as Threat to High-Value Stocks — Market Talk

1053 ET - Higher Treasury yields tighten financial conditions while raising discount rates used to value financial assets, Nuveen's Saira Malik says in a note. She adds that highly-valued stocks could sell off "if investors decide they'd rather take advantage of the currently elevated risk-free [Treasury] rates." On the positive side, higher yields "improve prospective income opportunities across fixed income and have helped the U.S. dollar firm," Malik says. Yields keep hovering near multiyear highs as Middle East tensions resurge. The 10-year Treasury is at 5.234%. ([email protected]; @ptrevisani)1033 ET - The U.K. Treasury chief, John Healey, could undo part of the employer national insurance increase announced by his predecessor Rachel Reeves, XTB's Kathleen Brooks says in a note. This policy has been blamed for the increase in unemployed youth, she says. "There may also be further remedial work on Rachel Reeves' prior budget announcements, including reducing business rates for high street shops." ([email protected])0950 ET - The U.K. could announce a relatively small budget on Oct. 28, due to constrained public finances, Aberdeen Investments' Lizzy Galbraith says in a note. The latest U.K. public finances data show public borrowing stood at 18.3 billion pounds in August, 19% higher than in the same period a year ago. "Tough decisions on welfare, youth unemployment, social care and long-term defense spending" could be pushed to 2027's government spending review or announced at the release of Prime Minister Andy Burnham's 10-year plan, Galbraith says. ([email protected])0947 ET - Bitcoin has pulled back significantly since reaching a near eight-month high last week but is showing some resilience as it remains above support at $80,000, Trade Nation's David Morrison says in a note. Bitcoin spent much of the summer in an extended period of consolidation, he says. This helped the cryptocurrency to build sufficient upside momentum, which wiped out short positions betting on it to fall and provided a basis for fresh buying, he says. "If it can hold and consolidate above $80,000 then this would help to build bullish sentiment." Bitcoin falls 1.2% to $83,522 after earlier hitting a one-week low of $82,516, LSEG data show. Last Monday it reached $87,315, its highest level since late January. ([email protected])0935 ET - Capital Economics thinks the Treasury sell-off mainly comes from changes in near-term rate expectations. The 10-year yield is near its June 2007 high, and economist James Reilly says it reflects higher oil and a strong US economy more than AI debt issuance or fiscal concerns. He says in a note he expects the 10-year yield to "drop all the way to 4.25% by the end of 2027 as the Fed fails to tighten by as much as investors are discounting." He believes that while AI debt issuance will continue to be a source of upward yield pressure, the effect is smaller than headlines suggest and will be outweighed by changes in monetary policy expectations. As for fiscal concerns, he adds that there hasn't been any meaningful fiscal news lately to warrant the yield surge. ([email protected])0906 ET - The Czech National Bank is likely to raise interest rates further in November, but this might not be enough to support the Czech koruna, Commerzbank's Tatha Ghose says in a note. One rate hike wouldn't be sufficient to boost the koruna as inflation will likely accelerate faster during this energy-price upswing than the CNB will be willing to raise rates, he says. The real rate adjusted for inflation will, therefore, fall as it did during the post-Covid rise in inflation, he says. The CNB left rates unchanged earlier this month but the minutes of the meeting showed the central bank is becoming more concerned about inflation risks. The euro rises 0.2% to 24.389 koruna. ([email protected])0900 ET - The global bond selloff resumes, keeping Treasury yields near multiyear highs, as hopes for an imminent solution for Hormuz and the oil trade fade away. President Trump rejects a ceasefire proposal and Iran is under pressure to return to the negotiation table. The impasse sends oil up, fanning inflation fears. The Conference Board Consumer Confidence Index is expected to be stable tomorrow, according to WSJ consensus. On Wednesday, PCE inflation is forecast to remain hot, while payrolls are expected to shrink Friday. The 10-year yield is at 5.215%, near its June 2007 high. The two-year is at 4.912%, both higher than Friday but off overnight highs. ([email protected]; @ptrevisani)0850 ET - The Australian dollar should rise if the Reserve Bank of Australia raises interest rates by 25 basis points to 4.60% on Tuesday as expected and signals further hikes, ING's Francesco Pesole says in a note. Inflation concerns remain elevated, and even if crude prices decline, domestic fuel prices are set to remain sticky for some time, he says. Core inflation measures are high, the labor market is tight and growth has proven stronger than expected, he says. "We therefore expect markets to retain expectations for further tightening after the meeting, offering support to AUD." The Australian dollar trades steady at $0.7022 and ING expects it to reach $0.72 by year-end. ([email protected])0849 ET - Canadian railways for a fourth straight month notched a rise in carloadings in July as strong growth in grains more than made up for large declines in coal and potash. Statistics Canada data shows railways transported 31.7 million metric tons of freight for the month, up 2.6% on-year. Traffic hit the third-highest level on record for the month of July, exceeding the five-year average for the month of 30.1 million tons. Freight loadings from connections with U.S. railways rose 11.1% on-year to 3.8 million tons, which may partly reflect re-routing of some rail traffic via American connections amid wildfires in Northern Ontario and British Columbia during the month, the data agency says. ([email protected]; @RobbMStewart)0824 ET - Yields on U.K. government bonds, or gilts, are likely to remain high during the remainder of 2026, ending the year at 5.15%, before falling to 4.70% by the end of 2027, Morgan Stanley's Fabio Bassanin says in a note. The bank assumes energy prices will move lower by year-end, allowing markets to cut back expectations for interest-rate hikes, he says. Brent crude oil is last up 2.6% at $107.01 a barrel. Investors price in an 83% chance of the Bank of England increasing interest rates in November, and fully expect four quarter-point BOE rate increases by July 2027, LSEG data show. Ten-year gilt yields last trade at 5.393%, Tradeweb data show. ([email protected])0808 ET - While the U.K. economy is set for more pain in the short term, several factors provide optimism further ahead, analysts at Capital Economics say in a note. Inflation is expected to peak at 4.3% early next year, while GDP should slow to 1.0% in 2027, they say. "But a fall in inflation next year will pave the way for faster GDP growth in 2028 and lower interest rates than widely expected." CapEcon expects inflation to ease to 2% by the end of next year, allowing the Bank of England to cut rates sooner than markets anticipate, which should support GDP growth of around 1.5% in 2028. In the longer term, artificial intelligence could support growth of around 2% by the 2030s, the analysts say. ([email protected])0741 ET - The risk that central banks won't raise interest rates as much as markets expect would potentially end low volatility in the foreign exchange market, Commerzbank's Thu Lan Nguyen says in a note. Current low FX volatility reflects reduced uncertainty about the future course of monetary policy as the economic consequences of the Iran war have become easier to assess after several months of the conflict, she says. However, expectations for rate rises appear excessive across many currency areas, she says. Low FX volatility also suggest markets are hardly pricing in any significant monetary policy surprises. "This very combination increases the risk of painful market corrections should economic conditions or monetary policy evolve differently from what is currently expected." ([email protected])