Ahead of an anticipated interest rate increase from the Federal Reserve, while short-dated U.S. bond yields briefly hit multi-week highs, world stock markets rose as technology shares recovered from a recent sell-off.
Record closing highs was set by the S&P 500, Dow industrials and Russell 2000. The spotlight was put on areas of the stock market where valuations appear stretched as the S&P technology index ended up 0.9 percent after a two-session selloff.
The U.S. central bank may also provide details on its plans to shrink $4.5 trillion of assets it amassed to nurse the economic recovery and is widely expected to raise its benchmark interest rate.
With relation to signaling a balance sheet reduction this year and another rate increase in December, the Fed could take an aggressively hawkish posture, analysts say.
After a strong 30-year debt auction ahead of Fed decision, the market was barely changed even though short-dated U.S. Treasury yields briefly hit multi-week highs. Considered most vulnerable to Fed rate increases was short-dated Treasuries in particular.
While two-year yields touched their highest in a month at 1.367 percent, U.S. three-year Treasury yields hit 1.511 percent, their highest since May 16.
With three- and two-year yields last at 1.503 percent and 1.363 percent, respectively, yields eased from session highs to be roughly unchanged from levels as of late Monday.
“The markets have to build in a little bit of risk that the Fed may say something about tapering tomorrow,” said John Herrmann, director of interest rates strategy at MUFG Securities in New York.
Along with materials and energy shares, big technology names like Microsoft and Alphabet helped prop up U.S. stocks in the equity market. Tech has led the S&P 500’s 9-percent rally this year.
After hawkish comments from Bank of Canada Governor Stephen Poloz, the U.S. dollar fell to its lowest against the Canadian dollar since late February.
Signaling that it could raise rates sooner than previously thought, Poloz said the central bank’s 2015 rate cuts “have largely done their work.”
Although no major policy changes are expected, the Bank of Japan and the Bank of England also meet this week besides the Fed.
As the Fed meeting also shone a light on the slow pace of change in European Central Bank policy, the gap between benchmark U.S and European bond yields held near its widest in a month.
After OPEC detailed supply cuts around the world, oil prices edged higher.
(Adapted from Reuters)