Long-term US government bonds rallied and Wall Street’s technology share index was on course for a record closing high on Monday as investors’ worries about the Federal Reserve tightening policy faded.
The technology-focused Nasdaq Composite gained 0.7 per cent in early dealings. It was pulled higher by Apple and Facebook as concerns eased about a rise in borrowing costs that would dent valuations of high-growth companies. The broader-based S&P 500 was flat after closing out its best week since February on Friday.
The yield on the benchmark 10-year US Treasury bond, which moves inversely to its price, dropped 0.05 percentage points to 1.483 per cent.
The 30-year Treasury yield, which directly influences the valuations of tech stocks because analysts use it as a yardstick to judge the relative value of long-term growth companies’ future cash flows, fell 0.06 percentage points to 2.103 per cent.
Fed officials this month brought forward their projections for the first post-pandemic interest rate rise by a year to 2023, initially causing gyrations in stock and bond markets and the dollar.
Higher interest rates on cash reduce the real returns from fixed interest securities such as government bonds. But nerves were soothed last week by data showing month-on-month US inflation ran slightly below economists’ expectations in May, while Fed chair Jay Powell also promised not to raise rates “pre-emptively”.
Long-term Treasury yields have dropped after racing higher in the first quarter of the year, a period when investors bet heavily on hawkish moves by the Fed. That, in turn, prompted fund managers to sell out of tech stocks and focus on the so-called value stocks such as industrial groups and banks that are seen as immediate beneficiaries of the economic recovery from the pandemic.
“In terms of value and growth styles, it now makes sense to hold an even balance,” said Nadège Dufossé, head of cross-asset strategy at fund manager Candriam. “We think central banks will remain very cautious about removing accommodation.”
Other analysts remained focused on the risks of the Fed reducing its $120bn of monthly bond purchases that have boosted financial markets since March last year.
The monthly non-farm payrolls report for June, out on Friday, is expected to show a gain of close to 700,000 US jobs compared with 559,000 last month.
“This [jobs] report will be the key focus point for the week,” said Jeremy Gatto, multi-asset fund manager at Unigestion. After Fed policymakers at their last meeting stressed a commitment to pursuing full employment “markets are going to place more emphasis on employment data”, Gatto added.
Elsewhere, the Stoxx Europe 600 index slid 0.4 per cent but was on track for its fifth straight month of gains. Spain’s Ibex 35 index lost 1.8 per cent after the tourism-dependent nation tightened entry requirements for UK visitors.
Brent crude, the oil benchmark, dropped 1 per cent to $75.42 a barrel, but remained around its highest point since 2018.
In currencies, the dollar index was flat. The euro was also flat against the US currency, purchasing $1.1933. Sterling rose 0.2 per cent against the dollar to $1.3904.