Stocks waver as US Treasury moves to lower bond yields

The U.S. Treasury has signaled a plan to lower government bond yields, easing concerns that higher borrowing costs could negatively impact global economic growth. This move comes amid rising oil prices, driven by doubts of a quick resolution to reopen the Strait of Hormuz for tanker traffic, which has fueled inflation fears since the U.S.-Iran war began nearly six months ago.

These fears, coupled with worries about ballooning U.S. government deficits, have led to falling bond prices and rising interest rates, posing a particular threat to tech companies that have been aggressively borrowing for AI investments. The U.S. Treasury surprised markets by announcing it would double its sovereign bond buy-backs to push down 30-year yields, which have soared.

This decision provided relief to equities, which had been under pressure from rising sovereign yields. Wall Street indices ended the day with modest gains, with the S&P 500 up 0.2 percent. However, the move by the Treasury is seen as a strong indication that higher U.S. yields are unacceptable. Minutes from the latest Federal Reserve meeting revealed that some policymakers believe interest rate hikes may be necessary if inflation does not decline.

Despite recent tensions between the U.S. and Iran, oil prices continue to rise, adding to inflation concerns. Meanwhile, UK inflation jumped to 2.9 percent in July due to higher energy bills. In the corporate sector, US biopharma group Moderna saw its share price more than double following positive results for a key skin cancer vaccine being developed with Merck.