Key facts
- Global stocks and bonds experienced a selloff on Wednesday.
- US 10-year Treasury yields hit 24-year highs.
- Federal Reserve policymakers showed division over the rationale for September's rate hike.
- The US dollar reached a 17-month high against the euro.
- SpaceX is reportedly in talks to raise $40 billion to buy Nvidia AI chips.
Global stocks and bonds faced significant selling pressure on Wednesday, with long-dated US Treasury yields reaching 24-year highs. The selloff in the bond market intensified, contributing to a broader market downturn. However, a strong auction of 10-year US Treasuries and the release of minutes from the Federal Reserve's last policy meeting provided some relief, easing the upward pressure on borrowing costs.
Minutes from the Fed's September meeting revealed that policymakers were divided on the rationale behind the decision to raise interest rates. Some viewed it as a precautionary measure against energy-driven inflation, while others saw it as a necessary step to combat demand-driven inflation. This division suggests potential uncertainty and less unanimity in future rate-setting decisions.
The 'term premium' on US bonds, representing the extra yield investors demand for holding longer-term debt due to general risk, has surged 40 basis points in the past two weeks, reaching a 12-year high of 96 basis points on Monday. Analysts at Bank of America highlighted this trend and pointed to US fiscal issues, the European Central Bank's willingness to stabilize spreads, and dynamics in Japanese government bonds as key factors for investors to watch in the fourth quarter.
In the technology sector, reports emerged that SpaceX is in discussions with financial institutions to raise $40 billion, potentially to purchase AI chips from Nvidia. This news brings attention to the complex and often opaque financing structures supporting the artificial intelligence revolution, with some investors, including prominent figures like Jim Chanos and Michael Burry, warning of potential dangers due to the circularity and opacity of these deals.