Bond yields are rising and stocks are under pressure from Fed cuts. The doubts surface again

By Kevin Buckland

TOKYO (Reuters) – U.S. Treasury yields rose to a near four-week peak on Wednesday, lifting yields on Asia-Pacific peers and the dollar, while stocks have come under pressure as data new doubts about the timing and magnitude of the Federal Reserve’s interest rate cuts.

Crude oil rose for a fourth day to hit a four-week high amid speculation that OPEC+ will maintain production cuts at a meeting next Sunday.

US 10-year yields rose to 4.556% during trading hours in Tokyo, a level not seen since May 3, after poorly received overnight auctions of two- and five-year Treasuries.

The equivalent Japanese yield reached its highest level since December 2011 at 1.065%, while Australian yields rose to a more than three-week high of 4.42%.

Investors were also taken aback by a sharp improvement in US consumer confidence in May. Economists had forecast weaker confidence for the fourth month in a row, especially after tepid results from Friday’s University of Michigan analog survey.

That has left the market guessing about the strength of the economy and persistent inflation pressures, which in turn cloud the outlook for the Fed’s policy path.

According to CME Group’s FedWatch Tool, traders currently put the odds of a rate cut of at least a quarter point in September at 44%, according to the data, following a coin toss a day earlier.

The dollar rose to a four-week high of 157.41 yen on Wednesday, gaining 0.07% against both the euro and sterling.

However, the Australian dollar added 0.08% to $0.66545, supported by data showing an unexpected jump in local consumer inflation last month.

“Whether incoming US economic news sees the money market pendulum swing back in favor of lower US interest rates in the third quarter” will be key to whether the Australian can maintain its upward momentum, the strategists wrote National Australia Bank in a customer note.

“Our basic view is ‘yes, that will happen’: we still have September for an initial Fed easing, and then another towards the end of the year.”

Regional stock markets were mostly lower on Wednesday, with the notable exception of mainland China.

Japan’s Nikkei fell 0.4%, the Australian benchmark fell more than 1%, while Hong Kong’s Hang Seng tumbled 1.2%.

Mainland blue chips, however, gained 0.3%

MSCI’s broadest index of Asia-Pacific shares fell 0.8%.

U.S. S&P 500 futures pointed 0.2% lower after a flat finish on Tuesday for the cash index.

In energy markets, Brent crude oil futures for July delivery rose 27 cents, or 0.3%, to $84.49 a barrel. U.S. West Texas Intermediate futures for July rose 35 cents, or 0.4%, to $80.18.

(Reporting by Kevin Buckland; Editing by Sam Holmes)