Rise in the US Treasury Yields put pressure on the market resulting into bearish weekly start on Wall Street. Yields surge past 5% with Fed planning for higher-than-longer interest rates.
Macro pressure continues to hover over Wall Street as the 10-year US Treasury yields surged higher even today on Monday, October 23. The treasury yields continue to hover at multi-year highs as investors prepare for higher-for-longer interest rates from the Federal Reserve.
Around 5:54 a.m. ET, the yield on the 10-year Treasury note, considered the benchmark, increased by 9 basis points to reach 5.014%. Similarly, the yield on the 30-year Treasury bond rose by approximately 8 basis points to reach 5.173%. It’s essential to note that yields move inversely to bond prices.
This marks the first time since July 2007 that the 10-year yield surpassed the 5% threshold. This surge followed the remarks from Federal Reserve Chairman Jerome Powell, emphasizing the central bank’s unwavering commitment to reducing inflation sustainably to 2%, even if it requires lower economic growth.
Futures tied to the federal funds rate are currently indicating a 98% likelihood that the central bank will keep its main interest rate unchanged within the target range of 5.25% to 5.5% at its upcoming monetary policy meeting.
Furthermore, there are scheduled auctions on Monday for $75 billion worth of three-month Treasury bills and $68 billion worth of six-month bills.
Dow Futures Tank 200 Points
On Monday, stock futures faced a decline as Treasury yields saw an increase, and traders geared up for the forthcoming corporate earnings reports from major tech industry players.
Futures linked to the Dow Jones Industrial Average experienced a drop of 227 points, equivalent to 0.7%. Similarly, S&P 500 futures and Nasdaq 100 futures lost 0.8% and 0.9%, respectively.
Wall Street is coming off a challenging week, with the S&P 500 concluding the week 2.4% lower, marking its first weekly loss in three weeks. The Dow Jones Industrial Average saw a 1.6% decline, while the Nasdaq Composite registered its second consecutive weekly loss, falling by 3.2%.
The upcoming week ushers in earnings season, with several major tech giants, including Alphabet (NASDAQ: GOOGL), Amazon.com (NASDAQ: AMZN), Meta Platforms Inc (NASDAQ: META), and Microsoft Corp (NASDAQ: MSFT), set to disclose their financial results. These earnings reports are highly anticipated by investors as they are expected to provide significant insights into the stock market. Ryan Detrick, chief market strategist at Carson Group, however, showed some optimism. He said:
“We’re hopefully going to see some continued positive strength there on the economy and what they see going forward. The headlines are scary, for sure. But the fundamentals to us are pretty strong. We’re still seeing earnings season that’s going to come in better than expected.”
Higher Treasury Yield Can Impact Ethereum
Elevated treasury yields usually impact risk ON assets like crypto. However, they seem to have impacted Ethereum much more than Bitcoin.
Crypto investors have the opportunity to earn rewards by staking Ether tokens to support the operation of the Ethereum blockchain, which some consider a potential factor to bolster the coin’s value. However, the staking rewards on these pledged tokens have dwindled to an annualized rate of 3.5%, reaching levels near the lowest recorded in the past ten months and significantly below the recent peak of over 8%.
This return also falls behind the 5% yields offered by US government bonds, which form the foundation of the traditional financial system. This disparity highlights how the allure of the occasionally volatile crypto market has diminished due to the departure from the ultra-low interest rates that were prevalent during the pandemic.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
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