Longer-dated global bond yields retreated from multi-decade highs, the dollar tumbled and gold jumped on Wednesday after the U.S. Treasury Department said it would boost liquidity support for longer-dated securities, following a broad selloff fueled by fears over swelling sovereign debt.
The U.S. Treasury Department said it would double the size of liquidity support buyback operations for longer-dated nominal coupon securities to at least $4 billion per operation from $2 billion.
U.S. long-dated government yields fell by as much as 10 basis points, dragging European government bond yields down too. U.S. long bonds had hit their highest in nearly 20 years on Tuesday, at nearly 5.34%, reflecting growing concerns about inflation and high debt.
Stocks rise as yields and the dollar fall
The drop in yields lifted stocks. The Nasdaq Composite gained 0.31%, the S&P 500 was up 0.41% and the Dow Jones Industrial Average rose 0.29%. MSCI's gauge of stocks across the globe increased 0.06%.
But the retreat in yields weighed heavily on the dollar, even as it sent gold and cryptocurrency prices sharply higher—a divergence that reflects growing unease over the U.S. debt trajectory. Concerns about ballooning government debt typically erode confidence in fiat currencies, driving investors toward gold and other hard assets as a hedge.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.75% to 98.90, with the euro up 0.79% at $1.1666. Against the Japanese yen, the dollar weakened 0.73% to 158.46.
Bitcoin gained 5.63% to $68,191.56 and ethereum rose 9.23% to $2,088.95.
Oil rises and Fed minutes highlight inflation concern
Oil prices gained as the prospect receded of a deal to end the conflict in the Middle East.
U.S. crude rose 1.78% to $86.45 a barrel and Brent rose to $92.23 per barrel, up 1.32% on the day.
Long-term borrowing costs from the U.S. to Germany and Japan have soared as investors grow increasingly anxious about ballooning government debt and elevated inflation, pressures compounded by the Iran conflict's impact on oil prices.
Minutes from the Federal Reserve's July meeting released on Wednesday showed that concern about inflation deepened, with "several" policymakers ready to raise interest rates and "many" saying a hike in borrowing costs would be needed if inflation does not decline to the U.S. central bank's 2% target.
The central bank left rates on hold last month, but Chairman Kevin Warsh unsettled markets by offering few clues on how policymakers might respond to persistent inflation.
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