Equities creep to five-week highs, ignore bond selloff By Reuters

By Saikat Chatterjee

LONDON (Reuters) – World stocks climbed to five-week highs on Wednesday as investors ignored a broadening selloff in global bond markets fuelled by a combination of soaring inflation and hawkish comments from U.S. policymakers.

Even though two-year U.S. Treasury yields are up 73 bps so far in March and set for their biggest monthly jump since 2004, investors have been relatively sanguine about the implications of higher yields on stock market valuations.

MSCI’s broadest gauge of world stocks rose 0.2% to a Feb. 17 high, a level last seen days before Russia invaded Ukraine. An Asian gauge rose 1% to its highest since early March.

European stocks also rose, with a pan-European equity benchmark hitting a new 1-month high in early London trading. U.S. stock futures signalled small gains.

“It is almost as if the negative impacts of inflation, rising interest rates and the uncertainties of war are no longer of concern,” said Stuart Cole, head macro economist at Equiti Capital, who added that investors were focusing on stocks that could withstand the high inflationary environment.

Technology shares which have had an inverse correlation with higher interest rates in the past were the biggest drivers of broader market gains, with a Hong Kong gauge of technology stocks rising to a three-week high.

Battered e-commerce giant Alibaba (NYSE:), which recently expanded a buyback programme, rose 6% and in Tokyo out-of-favour tech investment firm SoftBank Group rose 7%. The main U.S. tech index ended up 2% overnight cutting its year-to-date losses to 10% from 20% at mid-March.

“(Stocks) sold off too much and you see a bit of a rally,” said Jun Bei Liu a portfolio manager at Tribeca Investment Partners in Sydney, but she added it had the flavour of hedge fund short covering rather than new money piling in.

BOND SELLOFF

But the bulk the action was focused in the bond markets, with two-year U.S. yields pausing for breath at a six-year high after a massive rise this month.

The sharp rise in short-dated yields flattened the gap between two and 10-year U.S. yields to its lowest levels since the coronavirus pandemic hit global markets in March 2020. An inverted yield curve is widely seen as a predictor for future U.S. recessions.

The selloff in short-dated yields prompted Fed fund futures to price in an aggressive 190 bps through the remainder of the year after a 25 bps rate hike last week. Futures were nearly pricing in the probability of a 50 bps hike in May.

The selloff in U.S. markets reverberated elsewhere with German and British bond yields climbing, with soaring British inflation readings also a factor. Data showed inflation rose to a new 30-year high of 6.2% last…