US bond yields are above their lowest levels before Powell’s comments; Oil sags

US bond yields are above their lowest levels before Powell’s comments;  Oil sags

Written by Kevin Buckland

TOKYO (Reuters) – Treasury yields and the dollar hovered above multi-week lows on Wednesday as markets grappled with the prospect of another U.S. interest rate hike while awaiting comments from Federal Reserve Chairman Jerome Powell to guide policy expectations.

Crude oil prices fell to their lowest levels in three months after data showed a sharp increase in US inventories, while concerns about the Chinese economy weighed on the demand outlook.

Stocks were mixed in Asia, where gains in technology stocks offset declines in commodity stocks. Wall Street futures pointed slightly lower after gains by the three major indexes overnight, led by a 0.9% rise in the tech-heavy Nasdaq.

Expectations have been growing in recent days that US interest rates have peaked and cuts could begin as early as May, following a decline in key monthly jobs data at the end of last week and a decline in the Federal Reserve’s hawkish stance. However, investors remain sensitive to the possibility of raising interest rates amid dovish comments from Federal Reserve officials.

Federal Reserve Governor Christopher Waller said Tuesday that the economy is worth watching after “huge” third-quarter GDP numbers, while his colleague Michelle Bowman said she still expects higher interest rates will be needed. Powell will speak on Wednesday and Thursday.

US 10-year Treasury bond yields were little changed at 4.5789%, finding a floor after falling to 4.484% on Friday for the first time since September 26. It reached a 16-year high of 5.021% last month.

The dollar index, which measures the currency against six major currencies, was largely flat at 105.55, above the lowest level in more than six weeks of 104.84 reached on Monday, but well back from the high at the beginning of this month of 107.11.

“Markets are bracing for a moderation in growth in the U.S.,” which is pushing down longer-term bond yields and the dollar, said Kyle Rodda, a senior market analyst at

He added, “The decline in oil prices sends a similar signal.” “The sell-off is due to demand concerns: there are a lot of concerns about China’s recovery, but also after exceptional resilience, the US economy is slowing.”

Brent crude futures fell 25 cents to $81.36 per barrel on Wednesday, while US crude futures fell 35 cents to $77.02 per barrel. Both fell to their lowest level since July 24 in early Asian trading.

Declines in commodity stocks amid lower energy prices were offset by higher growth stocks, on expectations of lower borrowing costs.

An example is Japan’s tech-heavy Nikkei 225, which rose 0.13% while the broader Topix fell 0.66%.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3%, supported by gains in Chinese markets after some bullish comments from the governor of the People’s Bank of China.

Hong Kong’s Hang Seng Index rose 0.22%, while the mainland’s blue-chip index rose 0.1%.

(Reporting by Kevin Buckland; Editing by Shri Navaratnam)

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