Sep 28 (Reuters) – U.S. and global stocks made a partial comeback on Wednesday as the Bank of England announced it would intervene in the bond market to stem a damaging rise in borrowing costs, an attempt to mitigate investor fears of global contagion. financial system.

The BoE said it would temporarily buy longer-dated bonds – tied most closely to workers’ pensions and home loans – in light of a surge in UK bond yields to their highest level in years.

The pound, which hit record lows against the dollar on Monday, last rose around 1.37% in volatile trading, while gilt prices soared, fueled by the commitment of the central bank to postpone a planned sale aimed at cutting bonds it bought in the depths of the pandemic.

European government bonds also benefited from the surge in gilts.

Investors were rattled last week in particular by soaring bond yields, as central bankers rushed to raise interest rates to contain searing inflation before it tipped the global economy. in the recession. Read more

The dollar, the ultimate safe haven in turbulent markets, fell 1.25% from two-decade highs, boosted by benchmark 10-year Treasury yields approaching 4.0% for the first times since 2008.

The MSCI All-World Index (.MIWD00000PUS) last rose around 1.1%, after hitting a session low that marked its lowest level since November 2020. It is heading for a decline of nearly 8% in September – its biggest monthly drop since March. 13% drop in 2020.

In Europe, the STOXX 600 (.STOXX) and FTSE 100 (.FTSE) both pared losses to gain around 0.3% on the day.

Wall Street’s rebound accelerated during the day, with the S&P 500 Index (.SPX) up around 1.6% after falling to a two-year low on Tuesday. The Dow Jones Industrial Average (.DJI) gained 1.6% and the Nasdaq Composite (.IXIC) rose 1.5%.

Apple Inc weighed on growth stocks, which were down about 3% on a report that the tech company was scrapping plans to ramp up production of the latest model of its flagship iPhone.

Bryce Doty, senior portfolio manager for Sit Fixed Income Advisors LLC in Minneapolis, said the British intervention helped calm US markets, but “temporary stability is kind of an illusion.”

Doty cited the widening gap between 10-year Treasury yields and 30-year mortgage rates, which he attributed to the Fed’s reduction in its mortgage securities and the sharp inversion of the yield curve. resulting from the Fed’s “aggressive determination to harm economic activity”.

STORM IN UK MARKETS

At the heart of this week’s sell-off in global markets is the UK government’s so-called mini-budget last week, which announced a series of tax cuts and few details on how these would be financed.

The International Monetary Fund (IMF) and ratings agency Moody’s criticized Britain’s new economic strategy announced on Friday, which caused a collapse in the value of British assets.

Strategists at Amundi, Europe’s biggest asset manager, said earlier on Wednesday they believed UK assets would suffer more losses as the UK’s fiscal credibility remained at stake.

“We believe risks remain tilted to the downside – given the amount already priced in, less aggressive signals from the BoE will accelerate the move below parity (for the pound/dollar), in our view,” explained the strategists led. by Laurent Crosnier, global head of FX, wrote, recommending investors avoid the books.

Oil prices rose in U.S. trading hours on Wednesday as production cuts caused by Hurricane Ian offset downward pressure from a rising dollar and an expected buildup of U.S. crude inventories. U.S. crude rose 3.66% to $81.37 a barrel and Brent to $88.83, up 2.97% on the day.

Spot gold added 2.0% to $1,661.49 an ounce. US gold futures fell 0.30% to $1,621.80 an ounce.

Scott Wren, senior global markets strategist at the Wells Fargo Investment Institute, said markets could already be pricing in future difficulties.

“If the economy slows and eventually slips into recession and inflation stays higher for longer, we believe financial asset prices have adjusted to reflect this likely reality,” Wren wrote in a client note released Wednesday. . “Eventually a brighter sky will be on the horizon.”

Reporting by Lawrence Delevingne in Boston and Amanada Cooper in London Additional reporting by Wayne Cole in Sydney Editing by Mark Potter and Matthew Lewis

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