Stocks fall as bond market flips to 'higher for longer' mode
TLT•Global stocks fell as oil rose 4% to $108.5 a barrel and markets priced a 68% chance of a second consecutive Fed rate hike in October. U.S. two-year Treasury yields rose 56 basis points in September, their biggest monthly increase since February 2023.
1. Rate expectations rise
Global stocks fell on Monday as oil climbed on a stalemate in U.S.-Iranian talks and Treasury trading pointed to investors preparing for rates to rise and stay higher for longer. Markets implied a 68% chance of a second straight Fed hike in October, with around 90 basis points of tightening priced in through late next year.
2. Treasury yields climb
Two-year Treasury yields rose 56 basis points in September, their biggest monthly increase since February 2023. The two-year yield was up 5 basis points on the day at 4.914%, while 10-year yields rose 4 basis points to 5.22% and 30-year yields edged up to 5.52%. The move narrowed the gap between two-year and 10-year yields to around 30 basis points from around 40 basis points a month earlier.
3. Stocks and oil move
Brent crude rose 4% to $108.5 a barrel, bringing its gains for the month to 20%. MSCI’s All-World index fell 0.2%, S&P 500 futures dropped 0.5% and Nasdaq futures fell 1%; the STOXX 600 rose 0.1%, led by oil and gas stocks. Mark McCormick of BMO said the bond market was pricing U.S. resilience and a higher equilibrium rate, while exposing economies less able to absorb higher borrowing costs.
