US government bonds minted when they debut in 2022

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U.S. Treasury prices fell sharply on Monday in a bearish start until 2022 which follows the worst year for the global bond market in more than two decades.

The benchmark 10-year Treasury yield rose more than 0.1 percentage point, topping 1.6% for the first time since the emergence of the Omicron coronavirus strain in late November caused yields to fall. The two-year yield briefly exceeded 0.8%, its highest level since March 2020.

In equities, the S&P 500 had gained 0.2% by early afternoon in New York. The US benchmark had opened 0.6% more, helped by Tesla’s production figures, to narrow the lead later in the morning.

The European Stoxx 600 index closed 0.5% higher, hitting an intraday light volume record. The German Dax and the Cac 40 in Paris both rose 0.9%. Stock exchanges in London, Japan and mainland China were closed for holidays.

Monday’s market moves followed the worst year for global bonds since 1999 after central banks signaled they were ready to fight inflationary pressures with interest rate hikes. The withdrawal of the stimulus that fueled a global economic recovery has so far had only a modest effect on stocks, with the S&P 500 leveling off at the end of 2021 but still gaining 27% for the year. In Europe, the Stoxx 600 finished 2021 up 22%.

A survey of the U.S. manufacturing sector, due for release on Tuesday, as well as the monthly jobs report on Friday, will provide clues as to whether investors are right to anticipate at least three rate hikes from the Reserve federal this year.

“With speculative spirits high, investors will need to assess return per unit of risk as volatility reappears,” said Sean Darby, analyst at Jefferies. “Perhaps equity investors should be more concerned that policymakers get stuck trying to control inflation with higher rates without disrupting asset markets.”

Among the biggest engines on Monday, Tesla jumped more than 10% after the automaker negotiated a supply chain disruption to report deliveries exceeding expectations for the fourth quarter.

Competing automakers won in response, with Volkswagen and BMW increasing by more than 2% in Europe. Lufthansa drove travel inventories higher after Citigroup added the airline to its shopping list in response to optimism about the recovery in demand for long-haul flights.

Investors started the year with several risks in the background, said Karl Steiner, strategist at Swedish bank SEB. Evergrande’s notice on Monday that he would suspend his actions in Hong Kong again created “a bit of uncertainty,” Steiner added.

The real estate developer has been at the center of a sector crisis in the world’s largest emerging markets for months. Hong Kong’s Hang Seng stock index fell 0.5% on Monday, as the property development sector fell 1.1%.

Growing tensions between Western countries and Russia have also caught the attention of investors, with Joe Biden, US President, warning that his country will act “decisively” if Russia invades Ukraine.

Oil prices edged up on both sides of the Atlantic ahead of an OPEC meeting on Tuesday to discuss increased production. Brent crude, the international benchmark, rose 1.8% to $ 79.15 a barrel following reports that Libyan production had been strangled by a damaged pipeline.


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