CNBC Pro: Here’s what to invest in as yields rise again, BlackRock and others say
Yields are rising again, and the path of interest rate hikes seems set to continue.
For investors, that means that they should seize the opportunity now to put their cash in bonds or Treasurys – particularly the ones with the shortest durations, analysts said this week.
Wells Fargo said investors should seize the somewhat of a short-lived nature of this opportunity now.
South Korea’s trade deficit reaches $4.95 billion for October so far
South Korea’s trade deficit for the first 20 days of October widened to $4.95 billion, data from the customs agency showed, after recording a deficit of $4.1 billion for the same period in September.
Exports for Oct.1.-20 dropped 5.5% compared to a year ago, less than the 8.7% drop in September from the same period in 2021.
Imports rose 1.9% annually, after rising 6.1% last month.
Early trade: Where Asia-Pacific markets started the day
The Nikkei 225 in Japan slipped 0.24% in early trade and the Topix lost 0.33%.
In Australia, the S&P/ASX 200 fell 0.68% in its second hour of trade.
South Korea’s Kospi dipped 0.23% and the Kosdaq shed 0.37%.
MSCI’s broadest index of Asia-Pacific shares was 0.43% lower.
— Abigail Ng
Core consumer prices in Japan rose 3% in September
Core inflation in Japan rose 3% in September from a year ago, government data showed. That’s in line with analyst expectations and a slight increase compared to August’s 2.8% rise.
The index for core inflation excludes volatile fresh food, but includes fuel costs.
The headline inflation also came in at 3% in September, above the Bank of Japan’s 2% target and the highest since September 2014.
Excluding fresh food and energy, core consumer prices increased by 1.8% in September from the same period a year ago.
— Abigail Ng
Stocks fall for second day
Stocks finished in the red on Thursday, but did manage to close above their lows of the session even with a sharp afternoon rise for Treasury yields. The Dow, S&P 500 and Nasdaq Composite are all up more than 2% of the week even after two straight negative sessions.
— Jesse Pound
Bond market spooked by market bet that Fed will raise rates to 5% or more
The jump to 5% in May fed funds futures Thursday rattled Treasurys, and sent yields higher across the curve.
“It’s the speed of this move that is most jolting, ” said Peter Boockvar of Bleakley Advisory Group. For instance, the 10-year Treasury yield leapt to 4.22% Thursday afternoon, from a low of about 4% Wednesday morning.
Strategists said markets are fearing a more aggressive Fed, and the move in fed funds futures to a 5% terminal rate shook bond investors. The May contract was pricing the terminal rate at 5.01% Thursday afternoon.
The terminal rate is the level where the Fed would stop raising interest rates.
10-year Treasury yield shoots higher, becomes “unanchored”
The benchmark 10-year Treasury yield hit 4.22% Thursday after, jumping more than 20 basis points in two sessions.
Bond strategists say the move has been too quick, and the 10-year should start to find a stopping point. (A basis point equals 0.01 of a percentage point)
“I think 4% was reasonable,” said Wells Fargo’s Michael Schumacher. “4.22% has become unanchored. We don’t need the 10-year to act like a meme stock. That is not healthy.”
The yield, which moves opposite price, has been screaming higher on concerns the Federal Reserve will be even more aggressive, and that central banks will stay in tightening mode well into the future.
Gargi Chaudhuri, head of BlackRock’s iShares investment strategy in the Americas, said as long as yields continue to move higher stocks will suffer.
“Can we see another 25 [basis points] or so? I think maybe. We’re getting to levels where we could peak but markets could extend,” said Chaudhuri. “The market is overextending but things get exaggerated to both sides…especially as we go into the remainder of the year and quantitative tightening continues to happen.”
Fed funds futures, for the first time Thursday, rose above 5% for next May, signaling traders expect the Federal Reserve to raise its fed funds target rate to that level before stopping. That helped drive Treasury yields higher across the curve.