Traders sold US Treasuries for the second consecutive day on Tuesday as market jitters about the Omicron coronavirus variant calmed and investors looked ahead to central banks raising interest rates.
The yield on the benchmark 10-year US Treasury note, which moves inversely to the price of the government debt, rose 0.03 percentage points to about 1.66 per cent after climbing sharply on Monday.
The UK’s comparable gilt yield added 0.09 percentage points to 1.06 per cent, as traders also bought shares in UK and European businesses whose fortunes are pegged to economic growth and the easing of coronavirus restrictions.
London’s blue-chip FTSE 100 share index rose 1.7 per cent as its multinational commodities and banking stocks outperformed. The UK’s more domestically focused FTSE 250 rose 2 per cent, led by travel shares.
Europe’s regional Stoxx 600 equity gauge added a further 0.9 per cent on Tuesday, building on a record high set in the previous trading session.
“The global theme in markets is that we have reached peak Covid,” said Roger Lee, head of UK equity strategy at Investec, after traders seized on early data that suggested the highly transmissible Omicron variant may cause less severe illness than previous strains of the virus.
As investors become more optimistic about coronavirus, they had also raised their expectations of the US Federal Reserve and other central banks increasing interest rates, Lee added, making fixed income-paying securities such as bonds less appealing.
“If this is the last stage of Covid then rates have to go up because inflation has to be contained,” he said. Consumer price increases in the US are running at their fastest annual pace since 1982.
In US stock markets, the S&P 500 share index advanced 0.3 per cent, setting a new record high after a rise on Monday, with energy, banking and industrial stocks leading.
The technology-focused Nasdaq Composite fell 0.8 per cent. This gauge rose 1.2 per cent on Monday as Apple became the first company to reach a market capitalisation of $3tn. Analysts are increasingly concerned, however, about US equity markets becoming overly reliant on the performance of a group of large tech companies.
“The US economy looks to be deep into its business cycle, which typically sees market leadership narrow to mega-cap stocks,” said Tan Kai Xian, analyst at Gavekal, arguing that rising US wages would exacerbate this trend.
“At such moments, firms operating on thin margins are hurt most, and may turn lossmaking. In contrast, fatter-margin firms can keep growing,” he said.
“If the crutch of Big Tech was kicked away, then watch out,” said Patrick Spencer, vice-chair of equities at RW Baird. “The worry is that one of these very big tech stocks declines and that starts a waterfall of selling.”
In Asia, Tokyo’s Nikkei 225 closed 1.8 per cent higher while Hong Kong’s Hang Seng index was flat.
Brent crude, the oil benchmark, rose 1.6 per cent to $80.21 a barrel after producer group Opec+ agreed an output increase.