Bond yields drop after BoE vows to buy debt

U.S. and Canadian stocks saw their first gain in more than a week on Wednesday as longer-term bond yields tumbled the most this year after the Bank of England moved forcefully to get a budding financial crisis under control.

The S&P 500 jumped nearly2 per cent for its best dayin seven weeks, snapping Wall Street’s longest losing streak since the coronavirus crash in February, 2020.

The yield on benchmark 10-year U.S. Treasury notes fell over 0.26 of a percentage point in its biggest one-day drop since 2009. Canada’s 10-year yield fell nearly as much, in its biggest downward move in about a year, and was fetching 3.1 per cent by late afternoon.

The Bank of England said it would buy long-dated British bonds in a move aimed at restoring financial stability in markets rocked globally by the fiscal policy of the new government in London. The move sparked a rally in bond prices – which move inverse ly to yields–not justin England but across much of the globe. At the heart of this week’s sell-off across global markets is the British government’s so-called minibudget last week which announced a raft of tax cuts and little in the way of detail as to how those would be funded.

“Investors got a sense that maybe central banks blinked, or at least the central bank of England blinked. That has led to lower rates” for longer-term U.S. bonds, said Jack Ablin, chief investment officer at Cresset. “And that has helped push stocks higher.” But besides worries about higher rates from the Fed and other central banks, a litany of other pressures on the market are also lurking.

Among them: Investors are worried that the stress caused by a huge run for the U.S. dollar’s value against other currencies could make something crack somewhere in global markets. In Europe, tensions are rising even further amid Russia’s invasion of Ukraine, with suspicions about sabotage to important natural-gas pipelines the latest flashpoint. And profits for U.S. companies are under threat because of the slowing economy, high inflation and rising dollar.

Investors have been keenly listening to comments from Federal Reserve officials about the path of monetary policy, with Atlanta Fed president Raphael Bostic on Wednesday backing another 75-basis-point, interest-rate hike in November. Meanwhile, Federal Reserve Bank of Chicago president Charles Evans said that the Fed will likely get borrowing costs to where they need to be by early next year.

The S&P/TSX Composite Index ended up 1.9 per cent, its biggest advance since May 13.

The energy sector jumped 4.1 per cent as the price of oil settled 4.7 per cent higher at US$82.15 a barrel, helped by U.S. fuel inventory figures showing larger-than-expected drawdowns and a rebound in consumer demand.