Stock markets return to winning form as bond yields ease

by Warrior2

The fears over falling bond prices that gripped the market receded on Monday, as European stocks and U.S. stock futures rose as bond yields fell.

The surge in bond yields slammed equity markets last week, with the technology-heavy Nasdaq Composite COMP, 2.27% losing nearly 5%. Rising yields make the relative valuation of stocks look worse. Yields move in the opposite direction to prices.

The yield on the U.S. 10-year Treasury TMUBMUSD10Y, 1.429% was 1.45%, down from as high as 1.55% last week.

The Reserve Bank of Australia doubled its daily bond purchases to A$4 billion, sending yields on the Aussie 10 year TMBMKAU-10Y, 1.675% sharply lower. Comments from Federal Reserve officials last week suggested no appetite to step up purchases of U.S. government bonds.

“There is little doubt in my mind that central banks will eventually lean quite hard against a sustained rise in yields. They simply can’t afford to see it happen with debt so high,” said Jim Reid, a strategist at Deutsche Bank. “So far though, Fed officials have been largely relaxed over the recent moves, suggesting that it reflects more positive economic growth. But as it all happened so fast last week they will have had a chance to regroup and align their message for this week.”

The relief on the rates front gave a boost to stocks, with the Stoxx Europe 600 SXXP, 1.78% gaining 1.3% after a rally in Asian stocks NIK, +2.41% overnight.

Futures on the Dow Jones Industrial Average YM00, 2.14% rose over 300 points.

U.K. home builders jumped, on reports the government will subsidize mortgages with 5% down payments, a move meant to encourage homeownership in a country with the average house price of £251,500, and £496,066 in London. Bellway BWY, +6.52% rose 6% and Persimmon PSN, +5.29% rose 5%.

U.K. Chancellor Rishi Sunak delivers the budget on Wednesday.

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