Overnight, it seems, the world suddenly looks like a different place as Treasury yields test their highest levels in more than a dozen years on Thursday.
Broadly speaking, it’s not just higher-for-longer interest rates anymore that worry investors, but the possibility that U.S. borrowing costs may have more permanently risen. In Wednesday’s policy update by the Fed, officials penciled in another rate hike by year-end from current fed funds levels of 5.25%-5.5% and pulled back on the number of rate cuts they foresee for 2024, while lifting their projections for where the fed funds rate target is likely to land at the end of 2025.
Wednesday’s “hawkish” pause in raising rates by the Fed, followed by a similarly “hawkish” press conference by Chairman Jerome Powell, “caught fast money, or hedge funds, offsides and is forcing people in some cases to sell off bonds,” Hoffmann said via phone. “We broadly view it as an opportunity: You’re getting compelling real levels and levels in core rates that we haven’t seen in over a decade. It’s a good time to be in on the other side of that trade and conservatively add duration.
Major Asian stock indexes, including the Nikkei 225 and Shanghai Composite, all finished lower on Thursday. European stocks were mostly lower, while U.S. equities slid for a third day in New York trading, sending major indexes DJIA SPX COMP to their lowest levels in a month. The ICE U.S. Dollar Index briefly surged 0.5% earlier in the day to 105.7, its highest level in more than six months — taking the wind out of gold prices.
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