US STOCKS fell yesterday after a recent run-up in global bond yields unsettled investors already concerned about an eventual Federal Reserve interest rate hike.
Stocks recovered from steeper losses after Treasury yields slid back slightly from six-month highs.
The recent, unexpected leap in yields on US Treasuries and German Bunds has been a thorn in the side of US stock investors for several days.
“In the short term, the market is a hostage to interest rates,” said Jim Awad, managing director at Plimsoll Mark Capital. “To the extent you have an increase in interest rates that the Fed doesn’t control, you’re getting an unwanted tightening in the financial markets.”
Benchmark 10-year US Treasury yields touched their highest since mid-November earlier before moving down slightly. Elevated US yields mean higher borrowing costs, which can make it harder for companies to expand.
Such a rise in borrowing costs comes as investors attempt to gauge when the Fed will deem the US economy strong enough to begin raising its own interest rate for the first time since 2006.
The Dow Jones industrial average fell 36.94 points, or 0.2 per cent, to end at 18,068.23. The S&P 500 lost 6.21 points, or 0.29 per cent, to finish at 2,099.12, while the Nasdaq Composite dropped 17.38 points, or 0.35 per cent, to 4,976.19.
If borrowing costs eventually rise far enough to threaten the US economic recovery, the Fed will have few options at its disposal since its key interest rate is already near zero, Awad said.