Global Bonds Rally After 10-Year Treasury Yield Touches 4%
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Government bonds in Europe and the U.S. rallied Wednesday after an announcement by the Bank of England that it would buy longer-term U.K. bonds served to ease investors’ concerns about the potential for a spiralling crisis in the global debt markets. The sharp move added to a wild run of trading sessions and came just after the 10-year U.S. Treasury note had climbed above 4% for the first time in more than a decade - a somewhat stunning milestone that was quickly swept away by the day’s events. Yields on government bonds, which rise when their prices fall, have been climbing all year as central banks around the world try to combat the worst inflation in decades by raising short-term interest rates and otherwise tightening monetary policies. In the past week, however, yields have risen at an especially alarming rate. Investors began dumping bonds last Thursday, a day after the Federal Reserve had signalled that it would lift rates even faster than investors had expected. They got another jolt on Friday when the new U.K. government announced that it would cut taxes and greatly increase borrowing, setting off disorderly selling in U.K. bonds that spilled across borders. Those moves, however, reversed overnight when the Bank of England released a statement saying it would “carry out temporary purchases” of longer-term U.K. bonds “to restore orderly market conditions.” The central bank also delayed plans to sell U.K. bonds that it had accumulated earlier in the pandemic. U.K. bonds led Wednesday’s rally. But there were also large declines in U.S. Treasury yields, reflecting what investors and analysts described as relief on Wall Street that at least one cause of recent selling was being addressed. The 10-year U.K. bond yield was 4.086%, down from roughly 4.5% before the Bank of England’s announcement.
Despite seeing a choppy ride, the Switzerland stock market ended on a firm note on Wednesday, thanks to some strong buying at several counters past mid afternoon. The benchmark SMI ended with a gain of 94.33 points or 0.93% at 10,220.76, the day's high. Lonza Group rallied 6.2% and Roche Holding surge 4.1%. Roche is working on a preparation with an Alzheimer's antibody generated by Morphosys. Partners Group and Geberit both gained nearly 2%. Logitech climbed 1.35% and Sika ended higher by about 1.1%. Credit Suisse gained nearly 1%. Swiss Re ended lower by 1.85%. Alcon, Swiss Life Holding and Zurich Insurance Group shed 1.22 to 1.33%, while Holcim declined nearly 1%. On the economic front, the Swiss investor sentiment index declined by 12.9 points from the previous month to -69.2 in September 2022, marking the lowest level since a near seven-year low of -72.7 hit in June.
The major European stocks closed higher on Wednesday, as investors reacted positively to the Bank of England's announcement that it would suspend its U.K. gilt selling next week and engage in temporary purchase of long-dated bonds for a couple of weeks, aiming to calm the market that has taken a hit after the government's mini-budget. The pan European Stoxx 600 ended 0.3% up. Germany's DAX gained 0.36%, France's CAC 40 moved up 0.19% and the U.K.'s FTSE 100 ended higher by 0.3%. In the UK market, Land Securities surged nearly 7%. Segro, British Land, Burberry Group, Fresnillo, Ashtead Group, Endeavour Mining, Persimmon, Anglo American Plc, Barratt Developments, Melrose Industries, Antofagasta and Centrica gained 2 to 6%. Airtel Africa, M&G, Legal & General, Aviva, Rolls-Royce Holdings, Sainsbury (J), Standard Chartered, Ocado Group, Lloyds Banking Group and Barclays lost 3 to 7%. In the French market, CapGemini surged nearly 4%. Schneider Electric, Renault, Hermes International, Accor, Legrand, Sanofi, Air Liquide, LVMH and Essilor gained 1.5 to 2.5%. Societe Generale, ArcelorMittal, BNP Paribas, WorldLine, Credit Agricole and STMicroElectronics lost 2.5 to 4.3%. In the German market, Deutsche Wohnen climbed more than 4.5%. Vonovia surged 3.6%, while Zalando, Merck, Brenntag, Puma and Adidas ended higher by 2.3 to 3%. HelloFresh and Deutsche Bank both lost more than 3%. Allianz and Sartorius also ended sharply lower. Porsche's IPO is still likely to be successful. The issue price will presumably be set at the upper end of the range of 76.50 to 82.50 euros. Demand seems to be immense.
U.S. stocks swung higher on Wednesday, delivering an emphatic end to a week of punishing losses. The S&P 500 jumped 71.75 points, or 2%, to 3719.04 as bond yields tumbled, leaving stocks looking more attractive to investors. The Dow Jones Industrial Average rose 548.75 points, or 1.9%, to 29683.74. Both indexes had fallen for six straight days as of Tuesday, and earlier this week the Dow joined the S&P 500 in a bear market. The Nasdaq Composite rose 222.13, or 2.1%, to 11051.64. More signs are pointing to slowing economic growth, including, by one measure, the first monthly decline in house prices in years. Oil stocks such as Exxon (+3.6%) and Chevron (3.3%) rose sharply after crude oil prices returned to above $80 a barrel in New York as traders worried about slowing production due to Hurricane Ian in the Gulf of Mexico. WTI crude for November delivery on the Nymex closed up $3.7, or 4.7%, at $82.15. Biogen surged $78.82, or 40%, to $276.61 after the company said its experimental Alzheimer’s drug significantly slowed the disease’s progression in a large study. Its partner in the study, Japanese pharmaceutical company Eisai, rose 17% in Tokyo trading. Apple shares slipped $1.92, or 1.3%, to $149.84 after Bloomberg reported that the company is dropping plans to boost iPhone production. Blackberry fell 2% despite the cybersecurity company's better-than-expected second-quarter results.
After heavy losses the previous day, stock markets in East Asia recovered on Thursday. In Japan, the Nikkei is trending friendly, with technology and pharmaceutical stocks supporting the market. Biogen’s partner in the Alzheimer’s drug study, Japanese pharmaceutical company Eisai, rose 17% in Tokyo trading. In South Korea, the rally (+1.1%) is led by biotech and electronics stocks. In Hong Kong, gains of 1.5% are recorded. In Mainland China, the market is up 0.3 per cent.
U.S. Treasurys rallied on Wednesday after the Bank of England took urgent steps to arrest disorderly market conditions in its own government-bond market, handing U.S. yields their biggest one-day declines in more than two years. After briefly exceeding 4% for the first time since the 2008 financial crisis, the yield of the 10-year U.S. Treasury note plunged 23 basis points to 3.731%. The 2-year yield also eased by 19 basis points to 4.121%.
Stifel cuts Sika target to CHF 250 (355) - Buy
UBS reduces Givaudan target to CHF 2,870 (3,180) - Sell
Deutsche Bank lowers Roche target to CHF 300 (325) - Hold
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