By Mike Dolan
Oct 7 (Reuters) – As the US third-quarter earnings season gets set to kick off, Wall Street’s S&P 500 joined the Nasdaq in setting a new record high on Tuesday – its first in about six weeks.
Consensus forecasts are for another AI-led blockbuster rise in profits in the July-September period, with LSEG data showing expectations of an overall 30% annual expansion.
With Treasury yields still hovering close to 24-year highs, bond markets are navigating another heavy week of US debt sales. Tuesday’s auction of 3-year notes appeared to go relatively smoothly, unlike last month’s jarring 5-year sale, but the rates taken up were still their highest in 20 years.
Sales of 10-year and 30-year paper will follow today and tomorrow, respectively.
Even though the rise in Federal Reserve interest rate expectations has largely been responsible for the surge in Treasury yields over recent months, the risk premium that accounts for investor uncertainty about holding long-term debt to maturity is also back on the rise.
The New York Fed’s estimate of the 10-year Treasury “term premium”, which feeds off long-term debt and inflation concerns, has climbed to its highest in 12 years this week at 96 basis points.
Helping gauge the next steps from the Fed, the central bank will release minutes of its September meeting on Wednesday – a readout on what was said to be a unanimous decision to lift rates for the first time in three years.
In the background, the Atlanta Fed’s real-time GDPNow model eased a bit to 3.7% from as high as 5.1% previously – although this may be partly related to mechanical GDP impact from a rising trade deficit in August. That, though, was in turn driven largely by a jump in imports that speaks as much to stepped-up activity and the AI boom.
In Europe, French and other euro zone government debt markets calmed somewhat on Tuesday, with one eye on the spending cut plans of far-right presidential candidate Marine Le Pen, who’s now the favorite to win the April election.
Chart of the day
French government debt risk premia versus Germany surged last month to the widest in 15 years, as the country struggles again to pass an annual budget that would keep a lid on its annual deficit of more than 5% of GDP as debt piles soar.
The widening of French debt spreads and rising nominal borrowing costs have sent a jolt through all euro zone government debt markets, given the outside chance it seeds a repeat of the existential euro debt crisis of 2010-2012. Belgian, Italian and Greek debt markets felt most of the spillover last month.
Today’s events to watch
• US 10-year note auction (1 p.m. EDT)
• Fed publishes September policy meeting minutes (2 p.m. EDT)
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