US bonds steady and European stocks rise with Fed in focus


US bonds steadied after a sell-off on Friday that pushed borrowing costs higher, while European markets ticked up, with investors looking ahead to a key Federal Reserve meeting later this week.

The yield on the benchmark 10-year Treasury, which moves in the opposite direction to its price, was little changed in early European trading on Monday at around 1.61 per cent, having hit a 13-month high above 1.64 per cent on Friday.

In Europe’s equity markets, the region-wide Stoxx 600 index rose 0.4 per cent and Germany’s Xetra Dax added 0.2 per cent, while the UK’s FTSE 100 gained 0.3 per cent in late-morning trading.

The two-day meeting of the Fed’s policy-setting panel, which ends on Wednesday, will attract particularly close scrutiny from global traders after a sharp retreat in the Treasury market has sent yields surging. While rates remain low by historic standards, the pick-up comes as the US and global economic rebound is still in a fragile state.

This week’s meeting of the Federal Open Market Committee “will likely dictate where yields and risk trade for days, if not weeks ahead,” said Jim Reid, research strategist at Deutsche Bank. 

“Chair [Jay] Powell is likely to emphasise that significant uncertainties remain and that the recovery has a long way to go, particularly the labour market,” he added. 

The Bank of England, Norway’s Norges Bank and Turkey’s central bank all have meetings in upcoming days in what will be a busy week on the monetary policy front.

Line chart of Bond yields move inversely to prices showing US bond yields have risen rapidly

Europe’s bond market will also see a flurry of issuance activity, with Germany, France, Spain, Finland and Slovakia set to raise about €25bn in debt, according to UniCredit. France may also sell a green bond, the Italian lender said.

Futures markets indicated that Wall Street would open higher on Monday. Futures tracking the blue-chip S&P 500 and the tech-heavy Nasdaq 100 were both up 0.2 per cent.

In Asia, China’s CSI 300 index closed down 2.2 per cent, Hong Kong’s Hang Seng gained 0.3 per cent and South Korea’s Kospi slipped 0.3 per cent.

The drop in China’s market is the latest in a strong pullback that has come amid heightening concern the country will tighten fiscal and monetary policy in the face of what a senior official described recently as “bubble” risks.

Oil prices rose modestly on Monday as the prospect of economic normalisation and curbs on supply pushed prices higher. US marker West Texas Intermediate rose 0.3 per cent to $65.82 a barrel, while international benchmark Brent gained 0.3 per cent to $69.43 a barrel.

“We’ve seen the Opec+ maintaining their limit on oil supply and we’re seeing more economies reopening, which means there’ll be more of a demand on oil,” said Sophie Chardon, cross-asset strategist at Swiss bank Lombard Odier, pointing to the decision earlier this month by the Opec cartel and its allies such as Russia to refrain from a big supply boost.

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