LDN - Business

Stock futures flat as U.S. bond yields near 3 percent

[April 23, 2018] By Sruthi Shankar

(Reuters) - U.S. stocks index futures treaded water on Monday, ahead of a bevy of earnings from the world's biggest companies and as wary investors watched U.S. bond yields approach peaks that have sparked stock selloffs in the past.

The yield on 10-year U.S. Treasuries <US10YT=RR>, the benchmark for global borrowing costs, hit 2.9980 percent, its highest since January 2014. The U.S. five-year inflation swap, a key market gauge of long-term U.S. inflation, hit its highest level in 3-1/2 years.

The last time 10-year Treasury yields neared 3 percent, in 2013, it rocked risk appetite and sent stocks sliding and was shortly before oil prices went on a mighty 75 percent tumble. More recently, the stock market sold off in February as inflation expectations sent treasury yields surging.

Bond yields have also been pushed higher as a surge in Brent crude oil prices <LCOc1> to around $74 per barrel boosted inflation expectations, particularly in the United States.

"Inflation in the U.S. is more sensitive to oil prices than many other regions so it makes sense for inflation expectations to rise there," said Mizuho strategist Antoine Bouvet.

At 7:35 a.m. ET, Dow e-minis <1YMc1> were down 7 points, or 0.03 percent. S&P 500 e-minis <ESc1> were up 0.5 points, or 0.02 percent. Nasdaq 100 e-minis <NQc1> were up 7.75 points, or 0.12 percent.

The prospects of rising inflation come as U.S. companies are reporting results for what is turning out to be a much stronger-than-expected first quarter.

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Traders work on the floor of the New York Stock Exchange in the Manhattan borough of New York City, New York, U.S., April 20, 2018. REUTERS/Brendan McDermid

Profits at S&P 500 companies are expected to have risen 20 percent in the quarter, according to Thomson Reuters I/B/E/S, making it the strongest quarter in seven years.

This week, 181 S&P 500 companies are scheduled to report including some of the technology heavy-hitters like Facebook <FB.O>, Microsoft <MSFT.O>, Amazon <AMZN.O> and Intel <INTC.O>. Alphabet <GOOGL.O> reports after markets close on Monday.

Shares of Hasbro <HAS.O> fell 7.3 percent in premarket trading after the toymaker reported a bigger-than-expected drop in quarterly revenue, blaming the liquidation of Toys 'R' Us.

Aside from earnings and interest rates, U.S. Treasury Secretary Steven Mnuchin said on Saturday he may travel to China, a move that could ease tensions between the world's two largest economies.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta)

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