Bessent’s bigger bond buyback disappoints; oil keeps climbing

Government bond yields rose as investors were disappointed by US Treasury secretary Scott Bessent’s latest expansion of a bond buyback programme trying to remove some of the fever in bond markets.

Stocks on both sides of the Atlantic sank as higher bond yields were further compounded by Brent crude oil prices climbing above US$100 a barrel for the first time since July, with Iran saying it was ready to escalate the war with the US, while futures point to a soft start for the ASX when trading opens today.

Meanwhile, Anthropic researcher Jacob Coxon made a very public exit from the artificial intelligence developer, saying he was leaving the company because he didn’t want to build systems that can improve themselves and potentially escape control of their makers.

And JPMorgan Chase chief executive Jamie Dimon met UK prime minister Andy Burnham amid concerns in the banking sector that it will face a windfall tax in next month’s budget.

Not enough

The yield on US 10-year treasuries rose 4 basis points to 4.84% at 7am in Auckland – above the 4.8% rate on its New Zealand equivalent – as investors were disappointed by the increase in Treasury secretary Bessent’s buyback programme to US$6 billion from US$4 billion.

The rise in yields – which means a fall in the price of a bond – came as Brent crude oil futures rose 3.6% to US$101.47 a barrel as tensions in the Middle East remain high. Iran officials said the Islamic Republic was ready to escalate counterstrikes on US targets and was prepared for more intense fighting.

Stocks in Europe were hit harder than their US peers, as investors fretted as to whether the European Central Bank would react to the latest spike in oil prices at this week’s policy meeting. US producer and consumer inflation figures on Thursday and Friday are seen as key data points on whether the Federal Reserve will hike its federal funds rate next week.

“Risk sentiment is weaker after oil rose above US$100 per barrel, pushing global rates higher,” Bank of New Zealand senior markets strategist Jason Wong said in a note. “US treasury yields received an additional boost after disappointment over the size of the expanded buyback programme.”

The Dow Jones Industrial Average dropped 0.6% in late trading, with Alphabet, Nike and UnitedHealth Group leading the blue-chip index lower, while the S&P 500 slipped 0.4% and the tech-heavy Nasdaq Composite was down 0.6%.

Cool climate

Alphabet’s Google said it would spend €13 billion on AI infrastructure in Finland, due to the nation’s climate and renewable energy supporting data centre construction.

Apple dipped after releasing its first foldable iPhone, retailing at a starting price of US$1,999.

Meanwhile, Anthropic was thrust into the headlines when the Wall Street Journal reported researcher Jacob Coxon quit over fears AI would get out of control by developing self-improving models.

Anthropic also faces greater competition from Alibaba with the Chinese e-commerce giant saying its AI agent attracted 60,000 paid users in the five months since its launch, and was considerably cheaper than OpenAI and Anthropic’s general agents in carrying out e-commerce tasks.

Stocks in Europe tumbled, with the UK’s FTSE 100 sinking 1.3%, Germany’s DAX sliding 1.7% and France’s CAC 40 dropping 1.9% ahead of the ECB meeting this week, which is expected to raise its key rate.

Meanwhile, the Financial Times reported JPMorgan chief Dimon met UK prime minister Burnham and met with chancellor John Healey, amid concerns the banking sector could be hit with a windfall tax in the upcoming budget. Dimon convinced former chancellor Rachel Reeves not to raise taxes in her budget last November.

And French prime minister Sebastien Lecornu wrote to business executives saying the government proposed to reduce the corporate tax surcharge on large firms.

The downbeat tone is set to carry through into Australasian trading, with futures pointing to a 1% slide for the S&P/ASX 200 index when trading opens across the Tasman, while the kiwi dollar slipped to 58.37 US cents from 58.57 cents yesterday.

Greg Boland, market strategy consultant at Moomoo, said New Zealand’s S&P/NZX 50 index would likely open weaker after the soft lead from Wall Street and decline in Australian futures.

“For New Zealand investors, the combination of higher oil, higher bond yields and a weaker kiwi dollar means the global backdrop has become considerably more challenging,” Boland said in a note.

Companies shedding rights to upcoming dividend payments add another headwind with the gross index. NZX 50 companies going ex-dividend today include Spark New Zealand, Sky Network Television and Freightways.

Reporting by Paul McBeth. Image from Connor Gan on Unsplash.