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Wall Street Tumbles at Open, Spooked by Rising Bond Yields; Dow Down 160 Pts By Investing.com

© Reuters.

By Geoffrey Smith 

Investing.com — U.S. stock markets opened Monday sharply lower amid fears that the massive stimulus package making its way through Congress will lead to higher inflation, leading to higher borrowing costs and higher input costs for companies.

By 9:35 AM ET (1435 GMT), the was down 166 points, or 0.5%, at 31,428 points. The was down 0.7% and the was down 1.3%.

The moves were triggered by a sharp move higher in Treasury bond yields, which hit their highest level in a year over the weekend. Yields on 10-year notes came off their overnight high of 1.40% to trade at 1.35% by 9:35 AM ET, but are still up some 25 basis points over the last three weeks. Many tech companies, whose value lies mainly in their projected income streams far into the future, are particularly sensitive to interest rate movements because their future cash flows have to be offset by a higher discount rate.

Bonds are being weighed upon by the prospect of a sharp increase in Treasury issuance to fund the $1.9 trillion stimulus package crafted by the administration of President Joe Biden. The package is likely to be voted on by the House of Representatives as early as Friday, making a vote in the Senate possible next week.

Risk appetite has been bolstered by upward revisions to U.S. growth forecasts this year as a result of the mix of loose fiscal and monetary policy. Dallas Federal Reserve President Robert Kaplan said earlier he saw upside risks to a base case forecast of 5% growth this year. Kaplan told a conference that Americans will “gradually” increase their engagement with the economy in the first half, accelerating it in the second half as more and more of the population is inoculated against Covid-19.

 

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