Cracks are forming in a global stocks rally, with surging bond yields, rising energy prices and intensified worries over China’s economy among the factors sapping investors’ risk appetite following months of gains in equity markets.
Yields on the benchmark U.S. 10-year Treasury hit their highest since October on Thursday. Meanwhile, U.S. real yields, which show what investors can expect to earn on government bonds after adjusting for inflation, stand near their highest point since 2009. Benchmark yields also guide other key economic rates, raising the cost of capital as they climb. U.S. mortgage rates surged this month, with the popular 30-year fixed rate hitting the highest level in more than 21 years, further complicating the housing market outlook.Rising yields have also supported the dollar, which is up about 4% from its recent lows against a basket of currencies. More dollar strength could be an unwelcome development for everyone from U.S.
Financial conditions reflect the availability of funding in an economy and central banks have been working to tighten them to stamp out inflation above their targets. Property accounts for roughly a quarter of China’s economy, which is already suffering from tepid domestic consumption, faltering factory activity, rising unemployment and weak overseas demand. The country’s heavily property-exposed $3 trillion shadow banking sector is already in trouble.
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