European stocks were on the rise and US government bonds were steady on Tuesday ahead of the latest auction of Treasuries as market sensitivity to fluctuations in demand for American government debt remained high.
The auction of 20-year Treasuries totalling $24bn comes just a day before a significant Federal Reserve policy decision. A trio of auctions last week went mostly smoothly, but investors have been paying keen attention following a poor sale late last month that prompted heavy selling and hectic price moves in the world’s largest and most influential bond market.
“Liquidity in the sector remains depressed, and we think it will require a strong rebound in end-user demand for this auction to go smoothly,” said Jay Barry, managing director of interest rate strategy at JPMorgan.
The yield on the 10-year US Treasury remained at 1.60 per cent, holding below last week’s 13-month high above 1.64 per cent.
A two-day meeting of the Fed’s policy-setting panel starts on Tuesday and will attract particularly close scrutiny from global traders after the recent volatility in bond markets following increasing concern over the prospect of rising interest rates and inflation.
Brian O’Reilly, head of market strategy at Mediolanum Asset Management, said the central focus for investors this week was on the US central bank meeting. “There’s a delicate balancing act between the recovering US economy and rising inflation,” he said. “But we don’t expect a significant policy change from [Jay Powell].”
In Europe, the region-wide Stoxx 600 was up 0.6 per cent at midday, while the UK’s FTSE 100 added 0.8 per cent and Germany’s Xetra Dax climbed 0.7 per cent.
“We’re at the start of a multiyear period of outperformance of international equities,” said Chris Dyer, director of global equity at Eaton Vance, a US fund manager, adding that the global recovery favoured value stocks and, consequently, European and Asian indices.
Oil slipped on Tuesday, bringing it down modestly from peaks reached earlier this month. US marker West Texas Intermediate fell 1.3 per cent to $64.55 a barrel, while international benchmark Brent slid 1.4 per cent to $67.93 a barrel.
The Vix — an index that tracks expected volatility in US equities — has fallen to a 12-month low of about 20. “Volatility is continuing to come down,” said Dyer. “This could be an indication of greater confidence, but also complacency.”
Futures tracking the blue-chip S&P 500 indicated it would open 0.1 per cent higher on Tuesday, while those for the tech-heavy Nasdaq 100 rose 0.6 per cent.
The passing of President Joe Biden’s $1.9tn stimulus bill last week has introduced an additional wave of liquidity into the US equity market. “It is an extraordinary amount of stimulus,” said Dyer, adding that it would bolster the rise of the retail investor.
In Asia, China’s CSI 300 index closed 0.9 per cent higher, Hong Kong’s Hang Seng gained 0.7 per cent and South Korea’s Kospi added 0.7 per cent.