Bonds, stocks and precious metals slump as inflation fears mount, silver falls 7%
Government bonds, global equities and valuable metals sold off on Friday.
Mounting inflation fears, geopolitical tension and ongoing uncertainty around the Iran war weigh on sentiment.
The U.S. 10-year Treasury yield spiked by around 9 basis points, while spot silver dropped 7%.
Government bonds, precious metals and international stocks sold off on Friday, as inflation fears mounted and U.S. stocks. President Donald Trump concluded his high stakes visit to China.
By 10:56 a.m. in London, yields on a swathe of global sovereign bonds had jumped. The yield on the U.S. 10-year Treasury
It was almost 9 basis points higher at 4.544%, its highest level in almost a year.
The U.K. — which has seen yields on its government-issued debt emerging in recent days amid mounting political uncertainty — saw its benchmark 10-year gilt
yield 15 basis points higher.
Japan, which is particularly sensitive to inflationary pressure linked to the Iranian war, given its status as a major energy importer, also saw bond yields rise dramatically. Friday saw the yield on Japan’s 2-year bond
rise by as much as 19 basis points, before cooling a little to trade 12 basis points higher.
Bond yields and prices move in opposite directions.
At the same time, stocks listed in Asia and Europe traded sharply lower, and U.S. equity futures pointed to a negative opening on Wall Street. It comes after the Dow Jones Industrial Average reclaimed the 50,000 threshold on Wednesday and the S&P 500 closed above 7,500 for the first time.
Gold and silver markets also came under pressure on Monday.
spot gold
dropped 2% to $4,552.59 an ounce, while spot silver was down 6.5% to $78.08 per ounce. Front-month gold
and silver
futures fell 2.6% and 7.7%, respectively, while U.S.-listed gold and silver miners and ETFs sold off in pre-market trade.
By 5:05 a.m. ET, the ProShares Ultra Silver ETF was down more than 12%, while the iShares Silver Trust fund was 6% below. Silvercorp Metals
lost 6.9% ahead of the normal trading session, Teck Resources
fell by 5.9% and Endeavor Silver
was 4.9% lower.
The U.S. dollar index
rose by around 0.4%, as the greenback got a boost from a resurgence in inflation worries, and oil
prices jumped after Trump said China had agreed to purchase American oil.
Several developments are weighing on sentiment, investors and analysts watchers told CNBC on Friday.
Renewed concerns about an energy shock translating into more hawkish monetary policy is hitting Treasurys, amid fears the Federal Reserve may be behind the curve on inflation under incoming president Kevin Warsh. There is also continued uncertainty around the U.S.-Iran war, and the lack of a meaningful announcement resulting from the three-day Trump-Xi summit—despite an apparent thawing of Sino-U.S. relations. Political uprising in the U.K. is also playing a part, analysts said.
Profit taking and ‘uncomfortable truths’
Lauren Hyslop, investment manager at Mattioli Woods, said global markets were confronting some “uncomfy” truths, reflected in pricing on Friday.
“Rising bond yields are once again imposing their will on markets, tightening financial conditions and sapping risk appetite across asset classes,” she said CNBC in an email on Friday morning. “Investors are confronting the uncomfortable reality of ‘higher for longer’ rates in the U.S., as stubborn inflation and surprisingly resilient growth push back any meaningful pivot to easing.”
Hyslop added that a stronger dollar and “dashing hopes of liquidity support” were compounding the pressure on both equities and precious metals.
“Layer in geopolitical noise and mounting fiscal anxieties, not least in the U.S. itself, and a picture emerges of markets that may have been far too bloody about the road ahead,” she said.
It doesn’t take an economist to tell you that Americans are feeling a significant stress on their finances this spring. One of the most noticeable impacts of the ongoing war in Iran is the effect on gas prices.
Americans are paying an average of $4.50 per gallon, up about 50% since the beginning of the conflict. Fuel prices impact just about everything, and that’s reflected in April’s Consumer Price Index (CPI) increase, which came in higher than anticipated at 3.8%.
Analysts are now turning their attention to May and beyond, and the Federal Reserve just shared some awful news for stock investors with its latest inflation forecast.
When will inflation subside?
After last month’s spike in inflation, consumers and investors alike may be wondering whether the impacts of the war in Iran and President Donald Trump’s ongoing tariffs are temporary. Without a clear path to fully reopening the Strait of Hormuz, there’s a shortage of commodities that are typically transported through the passageway, putting additional price pressure on all sorts of expenses from groceries to airline fares.
Evangelia Gkeka, principal of fund research at Morningstar, said bonds were selling off on Friday as investors seek higher returns to offset the impact of higher inflation expectations.
“If you look at precious metals, recent dollar strength (they are priced in dollars and strength in the currency makes them more expensive for international investors) and expectations of higher rates have probably contributed to the movement,” she said via email.
“Investors looking for liquidity during the current period of geopolitical uncertainty and selling their most liquid holdings, such as precious metals or equities, could be another factor. We could also be seeing some profit taking after a prolonged period of strong performance.”
Tom Ross, head of high yield at Janus Henderson Investors, told CNBC on Friday that the sharp repricing of global bond yields was being driven by a combination of idiosyncratic factors and shifting macro expectations.
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