Wall Street Dips and Bond Yields Hit 2007 Highs Ahead of Fed Decision
Wall Street indices fell and 10-year Treasury yields hit 5.04% as investors reduced risk ahead of the Federal Reserve rate decision. Oil prices crossed $105 per barrel amid inflation concerns.
A tense trading session unfolded on Wall Street as investors chose to reduce risk ahead of the Federal Reserve's interest rate decision. The Nasdaq index closed down by about 0.8%, a similar decline was recorded in the Dow Jones, while the S&P 500 index lost about 0.4%.
At the epicenter of the storm was the yield on the 10-year US government bond, which climbed during trading to 5.04%—the highest level since 2007. Although it later retreated slightly, it remained above the psychological threshold of 5%. This is a significant development, as the yield serves as a benchmark for mortgage rates, consumer loans, and corporate financing costs.
Pressure in the bond market intensified alongside sharp increases in energy prices. The price of a barrel of US WTI crude crossed the $105 threshold during the day, while Brent crude climbed to the area of $108. Investors fear that expensive energy will once again trickle into prices, complicate inflation containment, and force the central bank to continue tightening policy.
According to market pricing, the probability of a quarter-percentage-point rate hike in Wednesday's Fed decision is higher than 90%. Therefore, attention is no longer focused solely on whether the rate will rise, but primarily on the messages that Fed Chair Kevin Warsh will deliver regarding the road ahead and the possibility of further hikes.
Cyclical consumer stocks stood out negatively amid fears of a blow to purchasing power, while energy companies benefited from the appreciation of oil. ResMed shares jumped by about 5% after RBC Capital upgraded its recommendation, while Morgan Stanley argued that the sharp drop recorded in Bank of America was exaggerated and maintained an "overweight" recommendation on the stock.
Bitcoin also joined the negative trend and retreated below $76,000. In Europe, trading ended with relative stability: the Stoxx 600 index fell by about 0.1%, the British FTSE lost 0.3%, and the French CAC weakened by 0.2%.
