Treasuries remain under pressure as traders weigh growth outlook

European stocks were muted on Monday, while US government debt remained under pressure, as investors weighed developments in Ukraine and the prospect of central banks tightening monetary policy to curb inflation.

The regional Stoxx Europe 600 share index — which is down 6 per cent for the year but has erased losses incurred since Russia invaded Ukraine — traded flat. Germany’s Dax gauge lost 0.6 per cent and London’s FTSE 100 was steady. Futures contracts tracking Wall Street’s benchmark S&P 500 were flat, while those tracking the tech-heavy Nasdaq 100 index added 0.1 per cent.

“We have to be humble and say that the range of possible outcomes, given the war, and the inflation outlook, is really quite wide”, said Kasper Elmgreen, head of equities at Amundi. “Eurozone growth is coming down, but a recession isn’t obvious because consumer and business balance sheets are quite strong.”

Meanwhile, the Treasury yield curve is now at its most inverted since 2007, when measured by the difference in two and 10-year borrowing costs, after US government bonds recorded their worst quarter on record in the first three months of this year as traders looked ahead to a series of rapid Federal Reserve interest rate rises.

The yield on the two-year Treasury note, which moves in the opposite direction of its price, rose 0.02 percentage points to 2.45 per cent on Monday. This yield, which is sensitive to interest rate changes, last week moved above that of the 10-year for the first time since 2019. The yield on the 10-year note — a benchmark for borrowing costs worldwide — added 0.02 percentage points to 2.39 per cent.

The inversion of this closely watched portion of the yield curve is typically perceived as a sign of a coming recession. Yet economists and policymakers are undecided about whether the Fed’s huge pandemic era bond purchasing scheme may have distorted the bond market, skewing yields.

Aneta Markowska, chief financial economist at Jefferies, said there was “little evidence that we are in a late-cycle economy,” as recessions tend to coincide with periods of “corporate restructuring, triggered by significant margin compression.”

“Margins have only begun to contract and are still close to cycle highs,” she added. “This does not look like a corporate sector that’s about to embark on a cost-cutting campaign.”

Elsewhere, in Hong Kong, shares rose sharply after regulators in China relaxed restrictions that had blocked US authorities from accessing audits.

The Hang Seng Tech index added 5.4 per cent, with video platform Bilibili and electric vehicle maker Li Auto among the biggest risers — gaining 13.3 per cent and 10.2 per cent, respectively.

The share price bump came after the China Securities Regulatory Commission, Beijing’s top financial watchdog, said on Saturday it would change confidentiality laws that prevented its overseas listed companies from providing sensitive financial information to foreign regulators.

The US Securities and Exchange Commission said last month that China’s largest companies had three years to provide detailed audit documents or face being delisted, accelerating a sell-off in Chinese technology stocks listed in the US and Hong Kong.

Saturday’s announcement was expected to create a framework for US regulators to gain access to company audit files.

The technology gains helped the Hang Seng index climb 2.1 per cent on Monday. In South Korea, the Kospi rose as much as 0.7 per cent, while Japan’s Topix rose 0.5 per cent. Australia’s S&P/ASX 200 added 0.3 per cent. Markets in mainland China were closed for a holiday.

Oil prices rose after declines last week, with Brent crude, the international benchmark, adding 0.5 per cent to $104.92 a barrel.