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MORNING BID-Selling bonds before Biden

·2 min read

A look at the day ahead from Tommy Wilkes.

The bond market has sprung back to life in recent days, with yields on U.S. Treasury bonds jumping to their highest in 10 months as investors brace for a wave of government spending under a Joe Biden administration.

The move is noticeable because, while stock markets have rocketed to new record highs, bond yields had until recently remained low and stable -- a deliberate aim of central banks that have chucked record stimulus at markets to keep government borrowing costs low.

On Tuesday the 10-year Treasury yield edged up another 2.4 basis points to 1.158%. Not only have markets brought forward bets on Fed interest rate hikes to 2023, many also reckon it could start withdrawing -- or tapering -- asset purchases earlier.

They got no relief from Fed officials, with Atlanta Fed president Raphael Bostic declaring himself "open" to tapering in late 2021.

If the move is the start of a longer-term shift higher, it has potentially big consequences for equity traders accustomed to a backdrop of near record low yields.

That alongside rising COVID-19 cases and a selloff in U.S. technology shares had unnverved investors on Monday, alongside Washington's threats to delist shares in major Chinese companies

On Tuesday though, European shares set to open higher and Japanese stocks earlier hitting a new record. The MSCI World Index is back in the black and oil prices are 0.8% higher.

Concerns over the future regulation of social networks sent Twitter shares falling as much as 12% overnight after its move to suspend Donald Trump's widely-followed account. Facebook and Alphabet, which issued similar bans, also fell.

Wall Street firms such as Goldman Sachs and JPMorgan, and Blackrock's iShares ETF arm all said they had cut exposure to China's stocks as a result of pressure from Washington.

Key developments that should provide more direction to markets on Tuesday:

-Swiss chemicals maker Sika posted a nearly 3% drop in annual sales .

UK consumer spending contracted 2.3% year on year in December, payment card provider Barclaycard said, the biggest drop since June. Spending in pubs and bars dropped 71%.