Stocks slip as surging U.S. bond yields fuel investor angst

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, August 1, 2023. REUTERS/Staff/File photo

LONDON, (Reuters) – Global shares fell on Tuesday, crushed by a surge in U.S. bond yields that lifted the dollar after Federal Reserve officials served a reminder that borrowing costs won’t drop any time soon.

The Fed’s outlook has pummelled other rate-sensitive assets such as oil, which slipped again on Tuesday.

U.S. 10-year Treasury yields have soared above 4.5% to their highest since late 2007 and on Monday staged their biggest one-day rise since early September, a move that punctured a rally in stocks, commodities and currencies.

Global equities fell for a second day on Tuesday, leaving the MSCI All-World index (.MIWD00000PUS) down 0.34%, near its weakest in four months.

In Europe, just healthcare, consumer staples and financials managed to stay in positive territory, but those gains were offset by losses elsewhere to leave the STOXX 600 down 0.4% (.STOXX).

U.S. stock index futures , suggested a modestly weaker start on Wall Street later, down 0.1%.

The latest catalyst was two Fed officials saying on Monday monetary policy will need to stay restrictive for “some time” to bring inflation back down to the central bank’s 2% target.

“In the U.S., there seems to be some growth exceptionalism – the U.S. consumer is holding growth together and in the medium term, it favours flows into the U.S.,” Samy Chaar, chief economist at Lombard Odier in Geneva, said.