The debt rout was led by gilts as data showing faster-than-estimated U.K. economic growth left traders betting on virtually no chance the Bank of England will cut interest rates through the end of 2017. Treasury yields jumped to the highest level since May and the greenback rose against most major counterparts amid bets on a Federal Reserve hike in December. Stocks retreated amid mixed earnings, while crude oil approached $50 a barrel.
Traders sent bonds toward their worst monthly slide since 2014 on speculation the global economy is becoming strong enough to withstand a shift away from ultra-easy policies. Bank of Japan Governor Haruhiko Kuroda said longer-term yields may rise even as he doesn’t see an immediate need to alter rates. The latest U.K. expansion marked a 15th quarter of growth, defying doomsayers who predicted a recession after Brexit. Meanwhile, a report Friday is forecast to show a notable pickup in U.S. activity after a sluggish first half.
“This is a combination of better economic growth and changing expectations for monetary policies going forward," said Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York.
U.K. 10-year gilt yields climbed to the highest level since the country voted to leave the European Union. The surprising economic data came two days after BOE Governor Mark Carney signaled the chances of another rate cut this year are diminishing.
The Treasury 10-year note yield rose five basis points, or 0.05 percentage point, to 1.84 percent at 4 p.m. in New York, based on Bloomberg Bond Trader data. That’s above the median economist forecast for 1.75 percent by Dec. 31.
"People are starting to look at interest rates and where they are, and they are getting a little nervous," said Charles Comiskey, head of Treasury trading in New York at Bank of Nova Scotia, one of 23 primary dealers that trade with the Fed. "What you are seeing is what you haven’t seen in some time -- lower pricing is attracting selling."
Euro-area bonds were also caught up in the selloff despite bets the European Central Bank will extend its asset-purchase program this year. The yield on German 10-year bunds rose to an almost five-month high.
Russian bonds fell as a surge in a gauge of inflation expectations spurred speculation that policy makers will leave interest rates unchanged for longer.
A deluge of debt offerings also weighed on the market. Corporate bond sales have topped $41 billion this week as investors seek refuge from more than $10 trillion of negative-yielding debt created by policies in Japan and Europe. Global bonds have left investors with a 2.5 percent loss so far this month, according to the Bloomberg Barclays Global Aggregate Index.
The Bloomberg Dollar Spot Index, which measures the U.S. currency’s performance against a basket of 10 major counterparts, rose 0.3 percent to a seven-month high. The greenback climbed 0.7 percent to 105.23 yen, and added 0.1 percent to $1.0900 per euro.
The Fed’s trade-weighted dollar index is approaching the strongest level since January. That was when the currency reached a 12-year high and forced policy makers to raise rates more slowly than they had originally forecast. This time may be different: With its gradual rise, the greenback hasn’t led to a deflationary oil-market rout or tantrum in equity markets that led the central bank to rethink its tightening path.
Elsewhere in the world, Norway’s krone rose as the nation’s central bank kept interest rates unchanged after scrapping plans for more stimulus. Sweden’s krona tumbled after policy makers signaled they’re ready to extend bond purchases into next year. The Mexican peso trailed most of its peers as some polls ahead of the U.S. presidential election showed Hillary Clinton’s advantage narrowing over Donald Trump.
The S&P 500 fell 0.3 percent to 2,133.04, dropping for a third day. Optimism on better-than-forecast profits from companies including Bristol-Myers Squibb Co. and Dow Chemical Co. was tempered by declines in United Parcel Service Inc. and Simon Property Group Inc. after their reports. Utilities and consumer staples slipped as a rout in bonds damped demand for equities with high dividend payouts.
Earnings reports also torpedoed small-cap stocks, sending the Russell 2000 Index to a more than three-month low. Community Health Systems Inc. lost half its value after the struggling hospital chain’s preliminary results missed estimates. GNC Holdings Inc. and Cliffs Natural Resources Inc. slumped at least 18 percent after their results disappointed.
European stocks were little changed as earnings updates from ABB Ltd. to Barclays Plc gave investors mixed signals on the outlook for corporate health.
Oil climbed from a three-week low following a report that Gulf nations may be willing to cut output as OPEC weighs action to ease a supply glut.
Reuters reported Saudi Arabia and its Gulf OPEC allies are willing to cut 4 percent from their peak oil output, citing sources familiar with the matter. OPEC Secretary-General Mohammed Barkindo urged members to show “maximum flexibility” to agree on output cuts, after saying Tuesday the group is facing its “hardest” challenge.
“There is a report that the Saudis and their Gulf compatriots are willing to cut output by 4 percent,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by telephone. “Whether that’s enough or not, we’ll see. There’s increasing amounts of skepticism in this market, which is keeping prices near these multi-week lows.”
West Texas Intermediate for December delivery advanced 1.1 percent to $49.72 a barrel on the New York Mercantile Exchange. Brent for December settlement increased about 1 percent to $50.47 a barrel on the London-based ICE Futures Europe exchange.
Gold traded in a narrow range this week as traders looked for U.S. data to give further clues about the strength of the economy and likelihood of tighter policy from the Fed.