US 10-year yield tops 4%, stocks fall, as Fed rate cut expectations ease
Updated at 4:07 p.m. EDT/ 2007 GMT
Strong US jobs growth dampens recession worries
10-yr yield tops 4% for first time since early August
Dollar eases after hitting seven-week high versus yen
By Chuck Mikolajczak
NEW YORK, Oct 7 (Reuters) -A gauge of global stocks declined on Monday and U.S. Treasury yields climbed, with the benchmark 10-year note topping 4%, as investors readjusted their views for the path of interest rates from the Federal Reserve.
The U.S. 10-year note climbed to 4.033%, its highest level since Aug. 1 and first time above 4% since Aug. 8 after Friday's stronger-than-expected U.S. payrolls report fueled expectations the Fed will dial back its aggressiveness in cutting interest rates.
Expectations for a Fed rate cut of 25 basis points (bps) at the central bank's November meeting stand at 84.6%, with the market pricing in a 15.4% chance it will hold rates steady, according to CME's FedWatch Tool.
Markets were completely pricing in a cut of at least 25 basis points just a week ago, with a 34.7% chance for another outsized 50 basis-point cut after the Fed began slashing rates at its September meeting with a 50 bp cut.
"The market very quickly flipped from talking about a 50 basis-point cut to possibly no cut in November, just based on the strength of the data," said Gennadiy Goldberg, chief U.S. rates strategist at TD Securities in New York.
"It would be very strange for them to give up the ghost on additional cuts this soon after a 50-bp rate cut," Goldberg said.
On Wall Street, stocks closed lower, with energy .SPNY the sole S&P 500 sector to post a gain as crude prices continued to ascend on concerns a widening conflict in the Middle East could dent supply.
The Dow Jones Industrial Average .DJI fell 398.51 points, or 0.94%, to 41,954.24, the S&P 500 .SPX fell 55.13 points, or 0.96%, to 5,695.94 and the Nasdaq Composite .IXIC fell 213.94 points, or 1.18%, to 17,923.90.
MSCI's gauge of stocks across the globe .MIWD00000PUS fell 3.66 points, or 0.43%, to 843.74, on track for its fifth decline in six sessions. In Europe, the STOXX 600 .STOXX index closed up 0.18%, erasing early declines, although gains were capped by rate-sensitive stocks such as real estate and utilities.
The yield on benchmark U.S. 10-year notes US10YT=RR was last up 4.3 basis points to 4.024%. The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations, climbed 5.7 basis points to 3.989% after rising to 4.027%, its highest since Aug. 20.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at a positive 3.3 basis points after briefly inverting for the first time since Sept. 18.
Major U.S. economic data is not scheduled to be released until Thursday, when the consumer price index is issued. Fed Chair Jerome Powell and other Fed officials have commented recently that the central bank has shifted its focus from combating high inflation to labor market stability.
Several Fed officials are scheduled to speak this week, including Governor Michelle Bowman and Bank of Atlanta President Raphael Bostic on Monday.
Minneapolis Federal Reserve Bank President Neel Kashkari said he feels the economy is resilient and the labor market, though showing some signs of weakening, is still strong, and the Fed's rate cuts are aimed at keeping them that way.
Hezbollah rockets early on Monday hit Haifa, the third-largest city in Israel, which looked poised to expand its ground incursions into southern Lebanon on the first anniversary of the Gaza war.
U.S. crude CLc1 settled up 3.71% to $77.14 a barrel and Brent LCOc1 rose to $80.93 per barrel, to settle up 3.69% on the day.
The dollar index =USD, which measures the greenback against a basket of currencies, slipped 0.05% to 102.48, with the euro EUR= down 0.03% at $1.0973.
Against the Japanese yen JPY=, the dollar weakened 0.42% to 148.09 after hitting a seven-week high of 149.13. Sterling GBP= was off 0.22% to $1.3083.
The Bank of Japan said broadening wage hikes were underpinning consumption and prodding more firms in regional areas to pass on rising labor costs, signaling the economy was making progress towards meeting the prerequisite for more interest rate hikes.
To read Reuters Markets and Finance news, click on: https://www.reuters.com/finance/markets For the state of play of Asian stock markets please click on: 0#.INDEXA
World FX rates YTD http://tmsnrt.rs/2egbfVh
Reporting by Chuck Mikolajczak; Additional reporting by Lisa Mattackal and Pranav Kashyap in Bengaluru; Alden Bentley in New York Editing by Hugh Lawson, Will Dunham and Matthew Lewis
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