US bonds steady and European stocks rise with Fed in focus
European stocks climbed to a year high and US bonds steadied after Friday’s sharp sell-off as investors looked ahead to a key Federal Reserve meeting later this week.
The Stoxx Europe 600 index rose 0.4 per cent, taking the region-wide benchmark to its highest level since February last year, while Germany’s Xetra Dax added 0.1 per cent and the UK’s FTSE 100 gained 0.2 per cent.
The yield on the benchmark 10-year Treasury, which moves inversely to its price, was little changed in early European trading on Monday at around 1.63 per cent, having hit a 13-month peak above 1.64 per cent on Friday.
But a sell-off in UK government debt, which began late last week, continued on Monday, sending the yield on the 10-year gilt up 0.03 percentage points to 0.861 per cent — its highest point since March last year.
The Bank of England is not expected to push back against rising yields at its monetary policy committee this week. Andrew Bailey, the central bank’s governor, told the BBC’s Today programme on Monday that the uptick in interest rates in recent months had been “consistent with the change in economic outlook”.
A two-day meeting of the Fed’s policy-setting panel, which ends on Wednesday, will attract particularly close scrutiny from global traders after a sharp retreat in the Treasury market sent yields surging last week. While rates remain low by historic standards, the pick-up comes as the US and global economic rebound is still in a fragile state.
This week’s meeting of the Federal Open Market Committee “will likely dictate where yields and risk trade for days, if not weeks ahead”, said Jim Reid, research strategist at Deutsche Bank. “Chair [Jay] Powell is likely to emphasise that significant uncertainties remain and that the recovery has a long way to go, particularly the labour market,” he added.
The Bank of England, Norway’s Norges Bank and Turkey’s central bank all have meetings in coming days in what will be a busy week on the monetary policy front.
