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Treasury yield surge hits technology stocks, Asian shares set to follow

(ATF) The benchmark 10-year US Treasury yield drove above 1.6% to hit its highest level in over a year on Thursday February 25, causing technology stocks to lead a downward shift for equities, with the Nasdaq 100 falling 3.5% and the S&P 500 down 2.5%. Asian stocks are set to follow.

Rises in Treasury yields had been curbed earlier this week by testimony from Federal Reserve chairman Jerome Powell that tried to downplay the threat of higher inflation if economies recover quickly from the Covid crisis while stimulus measures are still in place.

When yields drove back up again on Thursday other Federal Reserve officials signalled that they are not concerned by the move, and take it as a reflection of an imminent recovery.

“Much of this increase likely reflects growing optimism in the strength of the recovery and could be viewed as an encouraging sign of increasing growth expectations,” Kansas City Fed president Esther George told farm executives in a virtual event on Thursday, adding to a chorus of similar remarks from other Fed officials in recent days.

Atlanta Fed president Raphael Bostic, speaking in a separate online event, said bond yields remained comparatively low and that the central bank did not need to do anything at this time to address the uptick.

“Right now I am not worried about that,” Bostic said. “We will keep an eye out.. I am not expecting that we will need to respond at this point in terms of our policy.”

Fed officials said the increase in yields is a reflection of confidence that a robust economic recovery is on the horizon for the second half of the year, as more vaccines are distributed and with more fiscal stimulus likely on the way.

Nasdaq fall

The bond market movement nevertheless pushed the Nasdaq to its largest daily percentage fall in four months, as technology-related stocks remained under pressure following the rise in Treasury yields.

The Dow and the S&P 500 notched their biggest daily declines since late January.

The benchmark 10-year Treasury yield hit a one-year high of 1.614% before easing late in the day.

The Treasury yield rose above the S&P 500 dividend yield, wiping out the stock market”s advantage.

Apple, Amazon, Microsoft, Alphabet, Facebook and Netflix dropped between 1.2% to 3.6%.

Despite the broad market slide, GameStop shares surged again, leading a surprise resurgence of so-called “stonks” championed online by retail investors. After more than doubling on Wednesday, GameStop was almost 90% higher at its session peak but pared gains to close up 18.6%.

Tesla fell 8.1% after a report that the electric-car maker told workers it would temporarily halt some production at its California assembly plant.


Jon Macaskill

Jon Macaskill has over 25 years experience covering financial markets from New York and London. He won the State Street press award for 'Best Editorial Comment' in 2016


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