The eye-watering surge in long-term U.S. government borrowing costs continues to pummel world markets everywhere as investors fear 30-year yields above 5% are bound to sow financial distress somewhere in the system. With U.S. Congress again riven by the overnight ouster of the House speaker and Federal Reserve officials teeing up yet another interest rate hike amid persistently tight jobs market readings, bond yields are spiralling ever higher. Renewed concerns about a government shutdown next month now follow the removal of speaker Kevin McCarthy late on Tuesday - an unprecedented ejection of a Speaker by his own party.
The eye-watering surge in long-term U.S. government borrowing costs continues to pummel world markets everywhere as investors fear 30-year yields above 5% are bound to sow financial distress somewhere in the system.
And then throw in the resulting rampant dollar and the Bank of Japan's looming battle to hold up the yen, which intensifies speculation it may sell dollar reserves and Treasuries at the margin or move quicker to tighten its own monetary policy. With exchange traded funds capturing the full gamut of Treasuries now down 4.3% for the year to date - and U.S. government debt clocking a third straight year of annual losses for the first time in over two centuries - wider credit markets have started to murmur too.Although still relatively muted compared with the banking blowup in March, borrowing premia on U.S. corporate junk bonds are creeping higher again and have widened almost 40bp from the impressive lows set just two weeks ago.
The S&P500 dropped more than 1% on Tuesday to its lowest since May and the tech-heavy Nasdaq plunged 1.8%. * U.S. Federal Reserve Board Governor Michelle Bowman, Chicago Fed President Austan Goolsbee, Kansas City Fed chief Jeffrey Schmid and St. Louis Fed Interim President Kathleen O'Neill Paese all speakCarlos Barria/ReutersRight-wing pundits and lawmakers are already rallying around the idea of former President Donald Trump as the next Speaker of the House following Rep. Kevin McCarthy’s shock ouster Tuesday.
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