The brisk growth and inflation readouts are pushing back expectations for Fed easing, with futures not seeing another quarter point cut until June and doubting any more this year. Only 38bps of Fed easing is now priced for the whole of 2025.
Minutes from the Fed's latest policy meeting, where policymakers indicated just 50bps of additional rate cuts for this year, are due for release later on Wednesday.
But even given that recalibration, the movement of bond yields - where 10-year yields have risen 100bps since September as the Fed has cut 100bps over the same period - is "highly unusual", according to Apollo Chief Economist Torsten Slok.
"The market is telling us something, and it is very important for investors to have a view on why long rates are going up when the Fed is cutting," Slok told clients, positing fiscal worries, less bond demand from abroad or unjustified Fed cuts as possible reasons.
Rising Treasury yields, meantime, have lifted the dollar anew and also boosted long-term borrowing costs in other G7 economies in the slipstream. Most notably on Tuesday, 30-year British 'gilt' yields hit their highest since 1998.
While 10 and 30-year Treasury yields ticked back a touch early Wednesday, they have retained the bulk of the week's sharp rise.
Adding to the bond market tension, oil prices rose again on Wednesday as supplies from Russia and OPEC members tightened while U.S. crude oil stocks fell last week, market sources said, citing American Petroleum Institute figures.
At 5%, the year-on-year rise in U.S. crude is at its highest since July.
U.S. stock futures recovered a fraction of Tuesday's heavy tech-led losses early today, although Japanese and Chinese bourses fell again alongside a 0.8% drop in emerging markets indexes.
Chinese stock losses were narrowed in late trading there as markets digested Beijing's latest measures to expand the scope of consumer trade-ins. But leading the decline onshore, shares of semiconductor firms fell 0.7% as the U.S. Defense Department expanded the list of firms allegedly aiding Beijing's military.
Back stateside, uncertainties around the policies of the Trump administration were heightened by the President-elect's refusal to rule out using military or economic action to pursue acquisition of the Panama Canal and Greenland, part of a broader expansionist agenda he has promoted since winning election.
Trump also criticized American spending on Canadian goods and military support for Canada, saying the U.S. derives no benefits from doing so, and called the border between the two countries an "artificially drawn line."
With a domestic political hiatus following Canadian Prime Minister Justin Trudeau's decision to stand down as Liberal Party leader, the Canadian dollar remained calm.
In Europe, stocks seemed to buck the wider global nerves and hit three-week highs. European shares advanced on Wednesday, led by heavyweight financial stocks and as defence firms got a boost after Trump called for higher spending from NATO allies.
Trump said he believes European members of NATO should spend 5% of their GDP on the alliance's defense.
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