The 10-year Treasury yield fell to 4.51 per cent from 4.57 per cent late Tuesday, helping to impart calm across financial markets.
A swift rise in the 10-year yield that began in the summer earlier knocked the S&P 500 down by more than 10 per cent from its peak for the year. The 10-year yield briefly topped 5 per cent to reach its highest level since 2007, as it caught up with the Federal Reserve’s main interest rate, which is above 5.25 per cent and at its highest level since 2001.
The Fed has jacked up rates in hopes of slowing the economy and hurting investment prices enough to put downward pressure on inflation and get it back to its 2 per cent goal.
Last week, though, investors took comments from Fed Chair Jerome Powell to indicate the central bank’s hikes to interest rates may be done. He said the summer’s jump in Treasury yields could substitute for further hikes to rates if they remain persistent. That triggered a sharp easing in Treasury yields, which in turn helped stocks to rally.
Now, investors are trying to handicap what may come next. A wide range of outcomes is still possible for the U.S. economy, with the 10-year yield potentially easing as low as 3 per cent if it were to fall into a painful recession, according to Bank of America strategists led by Bruno Braizinha. At the same time, they said the 10-year yield could rise back above 5 per cent if the economy remains resilient.
A sharp drop in oil prices recently could take some pressure off inflation, which in turn could help the Fed feel more confident about holding rates steady instead of raising them further.
The price for a barrel of US crude oil is back to where it was in July, and it dropped another $US2.04 to settle at $US75.33. Brent crude, the international standard, fell $US2.07 to $US79.54.
Oil prices have been tumbling since topping $US90 a little more than a month ago. The latest Israel-Hamas war raised concerns about potential disruptions to supplies, which made prices volatile for a while. But worries about demand are still high given faltering economies around the world, particularly in China.
Stock indexes fell 0.2 per cent in Shanghai and 0.6 per cent in Hong Kong, joining modest losses across much of the rest of Asia. Stocks were higher in Europe.
Elsewhere on Wall Street, Axon Enterprise rose 6.1 per cent after the maker of Tasers, body cameras and other equipment reported stronger profit for the latest quarter than analysts forecast.
Ralph Lauren rose 3.2 per cent after reporting stronger profit for the latest quarter than analysts forecast.
eBay sank 2 per cent after its forecast for revenue for the last three months of 2023 fell short of analysts’ expectations.
Rivian Automotive swung from an early gain to a loss of 2.4 per cent after the electric vehicle company raised its forecast for how many vehicles it will produce this year and reported weaker profit than expected for the latest quarter.