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Stocks fall, bond yields and dollar gain after hawkish Fed comments

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© Reuters. FILE PHOTO: A man stands on an overpass with an electronic board showing Shanghai and Shenzhen stock indexes, at the Lujiazui financial district in Shanghai, China January 6, 2021. REUTERS/Aly Song//
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By Caroline Valetkevitch

NEW YORK (Reuters) – Stocks on global indexes were lower on Tuesday while U.S. Treasury yields rose to multi-year highs as comments from U.S. Federal Reserve Governor Lael Brainard put investor focus on the possibility of aggressive monetary policy tightening.

Yields took off after Brainard said she expects rapid reductions to the Fed’s balance sheet alongside methodical increases to the benchmark rate.

Wednesday brings the release of minutes from the Fed’s last policy meeting. The ECB will publish its equivalent minutes on Thursday.

The yield on 10-year Treasury notes was up 12.9 basis points to 2.541% while the 2-year note yield was up 9.2 basis points at 2.520%, leaving the 2-10 curve at 2 basis points after having been inverted for the most part since last week.

The Nasdaq led the decline on Wall Street, with higher rates seen as a negative for growth stocks.

“The market right now is focused on the Fed’s intentions for its balance sheet, which has led to the yield curve reversing some of the inversions that we saw last week,” said Jim Barnes, director of fixed income at Bryn Mawr Trust.

Investors were also watching for further developments on possible new sanctions against Russia after dead civilians were found in Ukraine.

An EU source told Reuters the European Commission could propose coal, wood and chemicals bans as well as new limits on shipping and trucking and on banks and technology.

The Dow Jones Industrial Average fell 63.38 points, or 0.18%, to 34,858.5, the S&P 500 lost 27.8 points, or 0.61%, to 4,554.84 and the Nasdaq Composite dropped 245.08 points, or 1.69%, to 14,287.48.

The pan-European STOXX 600 index was flat and MSCI’s gauge of stocks across the globe shed 0.59%.

The Australian dollar gained, boosted by the prospect of policy tightening by the Reserve Bank of Australia, while the euro fell on French election worries and the likelihood of more sanctions on Russia over Ukraine.

The Aussie dollar gained about 1% to US$0.7621, while the New Zealand dollar gained 0.6% to US$0.6996.

The dollar index rose 0.3%, with the euro down 0.46% to $1.092.

Concerns about the outcome of the French elections have prompted traders in the euro to slowly ramp up buying put options around the $1.07-$1.09 levels for end April expiry, Refinitiv data shows.

The prospect of a Russian sovereign debt default was back in play, after U.S. authorities prevented banks there from processing Moscow’s latest government bond payment, after weeks of allowing them to do so.

Soaring global energy and food prices mean almost 60% of developed economies now have year-on-year inflation above 5%, the largest share since the late 1980s, while it is over 7% in more than half of the developing world.

Oil prices eased Tuesday, however, after sharp gains on Monday.

U.S. crude recently fell 0.46% to $102.80 per barrel and Brent was at $106.91, down 0.58% on the day.

Stocks fall, bond yields jump following Brainard comments

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