Bond yields surge in U.S. Treasuries sell-off, stocks sink globally

By Laila Kearney

NEW YORK (Reuters) - A two-day unloading of U.S. Treasuries pushed their yields to multi-year peaks on Thursday as robust economic data and hawkish speeches by Federal Reserve officials stoked concerns about inflation, and stock markets sank globally.

The yield on the benchmark 10-year note hit a high of 3.232 percent following data released the previous day that was seen as increasing the odds a Friday payrolls report would also be stronger than expected. [nL2N1WK15B]

Fed Chairman Jerome Powell said the economy can expand for "quite some time," which also helped the yield curve steepen to its highest in two months.

Stocks, in turn, have fallen broadly. [nL4N1WK3BL]

The Dow Jones Industrial Average fell 282.61 points, or 1.05 percent, to 26,545.78, the S&P 500 lost 32.29 points, or 1.10 percent, to 2,893.22 and the Nasdaq Composite dropped 159.50 points, or 1.99 percent, to 7,865.59.

The CBOE Global Markets volatility index .VIX, known as Wall Street's "fear gauge", rose 4.12 points, its highest surge since Aug. 15. [nL2N1WK110]

The pan-European FTSEurofirst 300 index lost 1.02 percent and MSCI's gauge of stocks across the globe shed 1.22 percent. [nL8N1WK1VZ]

The surge in Treasury yields has also prompted a rise in government bond yields across the globe.

"We saw very large overnight volumes during both the Tokyo and London trading hours, which was a catch-up in foreign sovereign markets to the very large sell-off in U.S. Treasuries yesterday," said Jon Hill, U.S. rates strategist at BMO Capital Markets.

Euro zone bond yields rose sharply, tracking their U.S. counterparts, while the "trans-Atlantic spread" between United States and German 10-year bond yields hit a three-decade high of around 275 bps. [nL8N1WK16B]

The U.S. dollar weakened against the euro and yen but lingered near recent highs as investors digested U.S. economic data and Powell's remarks. [nL2N1WK1DY]

The dollar index rose 0.01 percent, with the euro up 0.3 percent to $1.151. The Japanese yen strengthened 0.60 percent versus the greenback at 113.87 per dollar.

Investors will now eye the U.S. government's September payroll report scheduled for release on Friday.

"That sense of the market's rising discomfort about inflation risks leads me to expect the wage inflation reading within the U.S. non-farm payrolls on Friday will be critical to the current sell-off," wrote Brian Daingerfield, macro strategist at NatWest Markets.

The exception of the day was Italy, where borrowing costs dropped for a second day after the government said it would cut budget deficit targets from 2020 and reduce its debt over the next three years.

Prime Minister Giuseppe Conte on Wednesday confirmed a deficit target of 2.4 percent of gross domestic product in 2019 and said it would fall to 2.1 percent in 2020 and 1.8 percent in 2021. [nL8N1WJ0RJ]

The estimates for 2020 and 2021 were lower than those initially reported, bringing further relief to bond markets rattled by the new government's plans to ramp up spending.

Oil prices fell as the prospect of increased crude production from Saudi Arabia and Russia prompted profit-taking the day after futures hit four-year highs on a boost from imminent U.S. sanctions on OPEC's No. 3 producer Iran. [nL4N1WK1GX]

U.S. crude oil futures settled at $74.33 a barrel, down 2.72 percent. Brent crude futures settled at $84.58 a barrel, down 1.98 percent.

(Additional reporting by Ritvik Carvalho, Amanda Cooper, Kate Duguid in New York; Editing by Dan Grebler and Nick Zieminski)