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U.S. yields tumble after Fed officials call for tapering

Global equity markets

Minutes from the Fed’s July meeting released last week showed most policy makers expect the Fed to start tapering bond purchases this year

Global equity markets dropped on Thursday, while U.S. Treasury yields tumbled after reaching two-week highs after two hawkish Federal Reserve officials called for the U.S. central bank to start ending its bond-buying program.

Ahead of a speech by Fed Chair Jerome Powell, Dallas Fed President Robert Kaplan said he still believes the Fed in September would announce a plan for tapering to start in October or shortly thereafter. Earlier, St. Louis Fed President James Bullard said the Fed is “coalescing” around a plan to begin reducing its $120 billion in monthly bond purchases.

Powell is due to speak at the Federal Reserve’s annual Jackson Hole policy symposium on Friday, held virtually due to the regional spread of the pandemic.

Minutes from the Fed’s July meeting released last week showed most policy makers expect the Fed to start tapering bond purchases this year, though consumer sentiment and economic data have weakened since that meeting.

Following Kaplan and Bullard’s comments, benchmark 10-year Treasury note yields reached their highest level since Aug. 12 before retreating to 1.3491%% after U.S. markets closed.

You’re going to see continued commentary around deciding when to start tapering. I think they want to have that digested by the market so it’s not a surprise when it begins later this year, said Ryan Jacob, chief investment officer at Jacob Asset Management.

The MSCI world equity index was down 0.52%, while the pan-European STOXX 600 index shed 0.32%.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan declined 0.65%.

On Wall Street, all three major indexes ended lower, with stocks in consumer discretionary, technology, financials and consumer staples among the biggest losers.

The Dow Jones Industrial Average shed 0.54% to 35,213.12, the S&P 500 declined 0.58% to 4,469.92 and the Nasdaq Composite dropped 0.64% to 14,945.81.

The market has been up five days in a row and so some of it is just people taking some chips of the table in the event there’s any surprises out of Jackson Hole, said Jordan Kahn, chief investment officer of ACM Funds in Los Angeles.

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