US Treasury yields lift, Wall Street slips as rates, China loom large

Yields on longer-dated US Treasury yields hit a 10-month high, while US stocks struggled for solid footing in choppy trading as investors considered the prospects of longer-lasting high interest rates and a struggling Chinese economy.

Benchmark 10-year yields reached 4.312 per cent in trading on Thursday and tested October’s 4.338 per cent, and a surge beyond would see the highest yields since 2007.

A steady stream of stronger-than-expected economic data, coupled with Wednesday meeting minutes suggesting Federal Reserve officials are still focusing on containing inflation, boosted yields while putting a damper on stocks and other markets.

Minutes from the Fed’s July rate-setting meeting released Wednesday showed policy makers were divided over the need for more rate increases, with some citing the risk to the economy of pushing hikes too far but most noting inflation remains a primary focus.

“We read in the Fed’s minutes that officials are nervous about the unknown cumulative impact of monetary policy tightening to date. Tighter credit conditions will eventually dampen economic activity and markets are choppy from the uncertainty,” said Jeffrey Roach, chief economist for LPL Financial.

On Thursday, the US Labor Department reported the number of Americans filing new claims for jobless benefits fell in the last week, suggesting the still-tight labor market that could suggest the Fed’s project to cool the economy remains ongoing.

“In short, the labor market is still strong but much more balanced than during the severe worker shortages of the early recovery from the pandemic,” said Bill Adams, chief economist for Comerica Bank.

That report followed several earlier in the week that exceeded economist expectations, including US retail sales, which all suggested the Fed may have to stick with higher rates for longer.

Wall Street was mixed in the first half of the trading day before dipping into lower territory amid this murky economic picture. The Dow Jones Industrial Average was down 0.25 per cent and the S&P 500 fell 0.11 per cent. The Nasdaq Composite dropped 0.3 per cent.

Brent crude was last up 1.02 per cent at $84.3 a barrel. US crude jumped 1.37 per cent at $80.47 per barrel.