European stocks retreated on Friday, as global markets are roiled by a sudden spike in bond yields, which sent investors fleeing highly valued segments of the market.
The pan-European Stoxx 600 fell 1.1% in early trade, with basic resources shedding 2.7% to lead losses as all sectors and major bourses slid into negative territory.
Shares in Asia-Pacific sold off sharply during Friday’s trade, led by a 3.99% decline for Japan’s Nikkei 225 while MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 2.99%.
U.S. stock futures are pointing to further losses on Friday after the pop in interest rates pushed the tech-heavy Nasdaq Composite to its worst trading session since October.
The yield on the U.S. 10-year Treasury notes briefly surpassed 1.6% on Thursday, its highest in over a year, fueled by expectations for higher economic growth and inflation on the back of Covid vaccine rollouts, the prospect of significant fiscal stimulus from Washington, and pent-up consumer demand. The 10-year rate mellowed on Friday morning, last seen at 1.4874%.
“Until recently, market participants have been able to digest the upward drift in long-term rates, but it appears that the next leg up in interest rates is a bigger bite to chew,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.
“Looking at where real yields were at, they were simply too low when considering growth expectations, and long-term real yields will likely continue to drift higher as economic data improves.”
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