US open: Banks jump again as bond yields continue advance
Wall Street is trading on the back foot after a report that China might be mulling not buying US government debt sent longer-term Treasury yields to their highest in almost a year.
At 1600 GMT, the Dow Jones Industrials Average was lower by 0.14% or 34.98 points to 25,351.75, alongside a 0.17% or 4.62 point dip for the S&P 500 to 2,746.30 and a fall of 0.39% or 27.87 points for the Nasdaq Composite to 7,135.74.
Earlier, Bloomberg reported that some Chinese officials had recommended slowing down US debt purchases or ceasing all together because it was now less attractive relative to other possible investments and due to trade frictions.
That saw the yield on the benchmark 10-year US Treasury note climb as high as 2.60% before the opening bell, which was just three basis points below the early-2017 highs, although it had since fallen back to 2.58%.
In the background, Bill Gross at Janus Henderson Group, who some in markets called the 'Bond King', proclaimed the end of the near three-decade long 'bull' market, pointing to a break-out in 25-year trend lines in five and 10-year Treasuries.
On Tuesday, the main indices notched record highs, while the benchmark 10-year US Treasury yield hit its highest level since March, breaching 2.5%. The move in Treasuries came after the Bank of Japan decided to scale back its monthly bond purchases.
Oanda analyst Craig Erlam commented: "If the reports turn out to be true and China no longer sees Treasuries as an attractive option, the repercussions could be significant as the country is one of the biggest holders of US debt. A significant change in policy could put considerable upside pressure on US yields, the result of which would be an effective tightening for the US.
"[...] The tightening effect of such measures would likely have an impact on how many times the Federal Reserve raises interest rates this year, which is why we’ve seen a corresponding drop in the dollar. The euro has spiked back above 1.20 against the dollar on the back of the reports before settling just below, while cable has moved back into the green on the day having been down around half a percent earlier in the session."
On the economic front, US import prices rose by 0.1% on the month in December, falling short of the 0.4% increase forecast by economists.
From a sector standpoint, the best performing areas of the market were: Aluminum (2.69%), Airlines (2.01%) and Biotechnology (1.95%).
Banks were again moving higher too, with the KBW sector gauge up by 1.58% to 111.66.
In corporate news, Sears was in focus after saying it has raised $100m in new financing and is looking to raise another $200m from other counterparties.
Shares in Supervalu were also active, plummeting after the release of the retailer's third-quarter numbers, while Eastman Kodak surged after the company said it was launching a cryptocurrency.
United Continental Holdings rose after the airline said late on Tuesday that traffic was up 2.7% on the year in December.
Technology giant Apple was a touch lower after it faced new question from the US and France over its battery-related performance issues with iPhones.
Later in the day, at 1830 GMT, St. Louis Fed President James Bullard will give a presentation at a 2018 Economic Outlook event in St. Louis.