Treasury yields hit 10-month high; world stocks extend 2018 rally

NEW YORK (Reuters) - Benchmark U.S. Treasury yields hit a 10-month high on Tuesday after the Bank of Japan tweaked its bond-buying program, while stocks in world indexes continued their flying start to the year.

Traders work on the floor of the New York Stock Exchange, (NYSE) in New York, U.S., January 9, 2018. REUTERS/Brendan McDermid

U.S. oil touched its highest since late 2014, while the yen hit a six-day high following the Bank of Japan’s announcement that it will trim its purchases of Japanese government bonds.

The move raised speculation Japan’s central bank may wind down its monetary stimulus this year.

“We don’t necessarily see this as a signal of impending policy change, but investors are very sensitive to the overall monetary policy backdrop, especially out of the major central banks,” said John Briggs, head of Americas strategy at NatWest Markets in Stamford, Connecticut.

The U.S. 10-year note yielded 2.546 percent, the highest since March 15, while the 3-year note yield, which is sensitive to traders’ views on Fed policy, was 2.074 percent, its highest since the instrument was reissued in 2007.

Stocks extended their record run. The S&P 500 and Nasdaq have hit records every trading day of the new year, or the past six sessions, providing optimism on the outlook for the rest of the year. The S&P 500 is up 2.9 percent since Dec. 31.

U.S. stock investors remain upbeat about fourth-quarter earnings season, which begins on Friday with results from JPMorgan Chase, with the focus expected to be on any comments related to the just-approved U.S. tax overhaul that includes hefty corporate tax cuts.

Bank stocks were boosted on Tuesday by rising U.S. Treasury 10-year yields. The S&P financial index was up 0.7 percent.

“We’re continuing the rally. Earnings season starts this Friday, and we’ll probably have another decent season. There will be some noise there with tax adjustments, but the forward-looking comments ought to be pretty positive. Investors are buying into that,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

“You have low inflation and rising earnings. That’s a good environment for stocks, so we’ve seen all of the indexes moving higher, continuing what we’ve had this year,” he said.

The Dow Jones Industrial Average rose 102.8 points, or 0.41 percent, to 25,385.8, the S&P 500 gained 3.58 points, or 0.13 percent, to 2,751.29 and the Nasdaq Composite added 6.19 points, or 0.09 percent, to 7,163.58.

The pan-European FTSEurofirst 300 index rose 0.48 percent and MSCI’s gauge of stocks across the globe gained 0.14 percent.

Also, in foreign exchange market, the dollar edged higher against a basket of major currencies and hit an 11-day peak, as its decline last week to the lowest in more than three months continued to draw bargain hunters.

The dollar index rose 0.16 percent, with the euro down 0.26 percent to $1.1934.

The Japanese yen strengthened 0.40 percent versus the greenback at 112.64 per dollar, while sterling was last trading at $1.3538, down 0.21 percent on the day.

Oil prices rose, with U.S. prices touching their highest since December 2014, supported by OPEC-led production cuts and expectations that U.S. crude inventories have dropped for an eighth week.

U.S. crude rose $1.23, or 2 percent, to settle at $62.96 a barrel after touching its highest since December 2014 at $63.24. Brent crude ended the session up $1.04, or 1.5 percent, at $68.82.

Additional reporting by Kate Duguid in New York; Editing by Chris Reese and Diane Craft