Long-term Treasury yields reached multiyear highs and the dollar strengthened on Monday as investors reacted to the guidance of central banks and braced themselves for an extended period of high US interest rates. The yield on the 10-year US Treasuries rose to 4.54%, the highest level in 16 years, while the 30-year note reached 4.66%, its highest level since 2011. The 10-year German Bund, Europe’s benchmark bond, rose to 2.81%, the highest level since 2011. The rising bond yields reflect a sell-off in global government debt as central banks hinted that the cycle of interest rate hikes is nearing its end, but also suggested that rates would need to stay high to combat inflation. Some officials have even indicated that further rate increases may be necessary to address above-target inflation risks. The equity market had potentially overestimated the likelihood of rate cuts, and it now appears that rates will remain at or close to current levels in the coming year.
The strengthening dollar index, which measures the performance of the greenback against six other major currencies, rose by as much as 0.5%, surpassing the high it reached during a regional banking crisis in March and achieving its strongest level since November of last year. In terms of market performance, Wall Street’s S&P 500 index closed 0.4% higher, led by the energy and materials sectors, and the tech-heavy Nasdaq Composite advanced nearly 0.5%. However, in Europe, the region-wide Stoxx Europe 600 fell by 0.6%, and Germany’s Dax lost 1%. These downturns were partly influenced by declines in China, where the once-dominant property sector experienced setbacks, dragging down Hong Kong’s Hang Seng by 1.8% and the CSI 300 by 0.7%.
The Chinese property giant Evergrande’s announcement that it was unable to issue new debt due to an investigation into its principal subsidiary, Hengda Real Estate Group, had a significant impact on Asian markets. Evergrande’s stock plummeted more than 20%, which followed the company’s warning a few days earlier that some creditor meetings were being canceled to reevaluate restructuring terms. This development triggered a ripple effect across China’s struggling property market, with developer Longfor dropping 6.5% and Country Garden losing 7.7%. The Hang Seng Properties index also suffered a decline of 4.2% in Hong Kong. China’s property sector, which typically accounts for over a quarter of activity in the world’s second-largest economy, has faced challenges this year as consumer demand struggled to recover after years of stringent pandemic restrictions. As investors await eurozone inflation data later in the week, concerns are growing that recent oil supply cuts could contribute to a second wave of inflation on a global scale.