Bonds fell in Asia and Europe and the dollar strengthened versus the pound after comments by Federal Reserve Chair Janet Yellen clouded the outlook for US monetary policy. European and US equity index futures declined with oil.
Benchmark bond yields in Australia and South Korea climbed to their highest levels since June, while rates in Germany increased after Yellen on Friday triggered a selloff in longer-dated US Treasuries by putting forward an argument for Fed policy to be kept loose. The Bloomberg Dollar Spot Index held near a seven-month high following the pickup in Treasury yields. Shares fell in most Asian markets as oil slipped toward $50 a barrel.
Investor sentiment continues to be dominated by shifts in expectations for the scale and timing of US interest-rate increases, while American companies’ earnings are also being watched closely. Fed Vice Chair Stanley Fischer is due to speak Monday, when American industrial output data are also scheduled. Yellen said there are “plausible ways” that running the economy hot for a while could repair some damage caused to growth during the recession, indicating a willingness to limit policy tightening as inflation quickens.
“US economic data like inflation for September and home construction, home sales and industrial output figures will be eagerly anticipated for clues about the Fed’s interest rate policy,” said Vasu Menon, vice president for wealth management research at Oversea-Chinese Banking Corp. in Singapore. “Earnings are especially critical at this juncture as US stocks are trading at near-record highs and susceptible to earnings disappointments as valuations look stretched.”
The euro area is due to report last month’s change in its consumer price index on Monday, while similar figures for the US are scheduled for Tuesday. China may issue data on money supply and lending, ahead of Wednesday’s release of gross domestic product figures for the third quarter. Bank of America Corp. has quarterly results coming, after Citigroup Inc. and JPMorgan Chase & Co. reported better-than-expected earnings on Friday.
The yield on Australia’s 10-year sovereign bonds rose by four basis points to 2.31 percent as of 7:30 a.m. London time, while that on similar-maturity notes in South Korea climbed by seven basis points to 1.62 percent. Germany’s yield increased by one basis point to a one-month high of 0.07 percent.
The yield on US Treasuries due in a decade declined by two basis points to 1.78 percent, after climbing six basis points on Friday to the highest level in more than four months. The two-year yield was little changed for a second day after futures prices indicated the chance of a Fed rate hike in 2016 held steady at 66 percent in the last session.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed following a 0.4 percent advance on Friday. The pound weakened 0.1 percent and Australia’s dollar slipped 0.2 percent.