Bond Yields Decline As Stock Prices Waver During Fed Run-Up

In the stock market, there was fluctuation as traders anticipated a possible pause in the Federal Reserve's aggressive hiking cycle after a potential rate hike in May. The S&P 500 experienced small gains and losses, while Treasury yields dropped along with the dollar. 

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Additionally, crude futures dipped below $70 a barrel in New York, as concerns about a potential US recession threatened to curb fuel demand. Despite the spreading contagion across the regional bank space, Mizuho strategists Evelyne Gomez-Liechti and Helen Rodriguez wrote in a note that they expect the Fed to add a final 25 basis point hike before pausing to assess the impact of significant and rapid tightening to date. 

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However, adding to the uncertain mood is the lack of clarity regarding the US debt ceiling. With President Joe Biden and members of the House and Senate scheduled to be in town at the same time for one week before June 1, when the Treasury Department may run out of cash, it is a key event risk in the next few weeks and possibly a month or two. 

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Aninda Mitra, Head of Asia Macro and Investment Strategy at BNY Mellon Investment Management in Singapore, suggested being long fixed income in this kind of environment and underweight equities as a defensive measure. 

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On the economic front, the US service sector expanded only modestly in April, with the weakest pace of business activity in nearly three years. However, US companies increased payrolls in April by the most in nine months, indicating a resilient labor market even as the economy cools.

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