Long Bonds Drop on Fed Pause, Nasdaq Futures Gain: Markets Wrap

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(Bloomberg) — Longer-maturity Treasuries extended declines and Asian bonds followed as uncertainty over the Federal Reserve’s policy outlook pushed US 30-year yields to their highest levels in almost two decades.

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Thirty-year government bonds in Australia, New Zealand and Japan came under pressure after similar-dated US yields jumped following the Fed’s decision to leave interest rates unchanged for a seventh month. The Treasury 30-year climbed three basis points on Thursday to 5.23%, the highest since 2007, extending an 11-basis-point jump following the Fed decision. 

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Asian stocks fluctuated in a volatile session that saw South Korea’s Kospi Index swing between gains of as much as 5.5% and a loss of as much as 2.1%. 

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Futures for the Nasdaq 100 Index climbed 0.6% after the underlying gauge entered a technical correction on Wednesday. Lifting sentiment, Microsoft Corp. gained almost 9% in extended trading after reporting its fastest cloud-computing growth in four years. Meta Platforms Inc. fell 7.5% in post market trading following a disappointing revenue forecast for the current year. European shares were set for a tepid start, with traders awaiting the Bank of England’s policy announcement.

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Investors have been whipsawed this week by three themes: a global selloff in semiconductor stocks amid concerns about returns on billions of dollars of AI spending, renewed fighting in the Middle East and uncertainty over the Fed’s inflation fight. The lack of updated policy guidance by the US central bank, coupled with a divided committee, left markets with little clarity on the path for rates.

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“There’s very little to hang your head on in the markets,” Torsten Slok, chief economist at Apollo Global Management, said on Bloomberg Television. “It was also a little bit complicated to figure out what was the basis of the decision,” he said, adding that the Fed’s abandonment of providing guidance is fueling historic bond market volatility.

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Attention now turns to the BOE on Thursday, followed by the Bank of Japan the following day. UK 10-year bond futures declined for a second day, falling 41 ticks to 86.37, indicating losses in the cash market. Japan’s 30-year bond yields climbed 4.5 basis points to 3.975%.

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The moves in longer-maturity bonds revealed investors are growing increasingly concerned that the Fed will fail to rein in inflation that has run above the central bank’s target for five straight years.

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Fed Chair Kevin Warsh said the decision to leave rates unchanged wasn’t a sign of inertia at the central bank and that markets would be free to chart their own course based on economic signals. Three of the Fed’s 12 voting officials dissented in favor of a rate increase, highlighting persistent concerns about inflation.

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“Despite three committee dissents in favor of a July hike, Chair Warsh stopped short of flagging an imminent hike, echoing June’s tone,” said Fabien Yip, a market analyst at IG International in Sydney. “That is starting to unsettle investors. A Fed unwilling to commit to further tightening raises the question of whether it can keep long-term inflation expectations anchored.”