Stocks decline as German yield climbs to 2011 high

BLOOMBERG

Government bonds slumped, wiping out early gains in US equity futures, as traders speculated central banks will keep interest rates elevated to quell inflation. The dollar hit its highest level since March. Germany’s 10-year yield rose to the highest since 2011 and the Stoxx 600 sank 0.6%, dragged down by mining shares. Rio Tinto Plc fell as much as 5.2% as China’s property problems weighed on the outlook for natural resources.
After the salvo of central bank decisions last week, traders are increasingly concerned that rising oil prices risk fanning inflation, which will make it difficult for policymakers to reduce rates anytime soon. Oil resumed a rally as hedge funds piled on bets tightening supplies will stoke demand. Bloomberg’s Dollar Spot Index rose to the highest since March.
“All central banks need to stick to this higher for longer rhetoric as inflation is nowhere close to their mandate,” said Pooja Kumra, senior European rates strategist at Toronto-Dominion Bank.
Two Fed officials said at least one more rate hike is possible and that borrowing costs may need to stay higher for longer for the central bank to ease inflation back to its 2% target. While Boston Fed President Susan Collins said further tightening “is certainly not off the table,” Governor Michelle Bowman signaled that more than one increase will probably be required.
The Treasury 10-year yield may rise to 4.75% before softer risk sentiment and tighter financial conditions push it lower into year-end, according to strategists at Bank of America Corp.  The benchmark traded at 4.49%, just short of September 22’s 16-year high, when it breached the 4.5% level.
Meanwhile, fresh signs of concern for China’s property developers were highlighted by China Evergrande Group’s decision to cancel a creditor meeting, adding to fears about its debt pile. That’s compounding concern that global growth will stall as the economic engine of China sputters.