Stocks Struggle as Treasury Yields Linger Near 5% After Strong U.S. Economic Data

On Thursday, U.S. Treasury yields rekindled to approach the 5% mark, buoyed by robust U.S. GDP figures that exceeded expectations. This resurgence in yields had a ripple effect, dragging global stock markets to multi-month lows during a hectic corporate earnings week.

‍

Data released on Thursday unveiled that the U.S. economy surged at its fastest rate in nearly two years during the third quarter. This remarkable growth was propelled by higher wages in a tight labor market, fueling consumer spending. Once again, the U.S. economy defied gloomy predictions of a recession that had persisted since 2022.

‍

The surprising strength of the U.S. economy has been a key factor contributing to the selloff in the U.S. Treasury market. The benchmark 10-year yield, a closely watched indicator, fluctuated around 4.917%, marginally down for the day, after briefly touching 4.989%. It came very close to 5.021%, a level not seen since 2007, which had been achieved earlier in the week.

‍

The U.S. bond market faced additional concerns as it witnessed a rebound in U.S. home sales and an auction of five-year notes that displayed signs of weak demand. This combination of factors led to an 11-basis point rise in the yield on the 10-year U.S. Treasury note on Wednesday.

‍

Quincy Krosby, the Chief Global Strategist at LPL Financial in Charlotte, noted that the robust U.S. economic growth has raised market apprehensions about the Federal Reserve needing to implement another interest rate hike before the year concludes to combat inflation. Krosby remarked in an email, "The Fed's job isn't done, and it does not seem that higher interest rates are effectively addressing their concerns."

‍

The upcoming Friday release of the personal consumption expenditure (PCE) price index, a favored measure of inflation by the Federal Reserve, remains a significant focal point. Investors and analysts alike are eagerly awaiting this data point as it provides essential insights into the state of inflation, which continues to be a pivotal factor influencing the Fed's policy decisions.

‍

In summary, the resurgence of U.S. Treasury yields, approaching the 5% threshold, has had a profound impact on the global financial landscape. This resurgence was propelled by better-than-expected U.S. GDP figures, challenging the persisting recession concerns dating back to 2022. The U.S. bond market exhibited signs of anxiety due to various factors, including a rebound in home sales and a somewhat lackluster auction of five-year notes. This scenario has also fueled speculation that the Federal Reserve may find it necessary to raise interest rates once more before the year's end to tackle the ongoing inflationary pressures. In this context, the forthcoming release of the PCE price index will be closely scrutinized as it plays a pivotal role in shaping the Fed's future policy decisions.

‍