U.S. government bonds fell while stocks ended the day higher as traders speculated central banks will keep interest rates elevated to quell inflation. A gauge of U.S. dollar strength hit its highest level this year. 

A bond selloff extended into a fourth week as the U.S. Treasury 10-year yield climbed 11 basis points above 4.54 per cent, a level last seen in 2007. Bloomberg’s Dollar Spot Index rose for a fourth day, reaching the highest since December.

The S&P 500 snapped a four-day slide, rising 0.4 per cent as traders returned to their desks following the worst weekly selloff on Wall Street since March. The Nasdaq 100 ended the day 0.5 per cent higher, with Amazon.com Inc. gaining 1.7 per cent — the head of its cloud unit told Bloomberg Television he was seeing “huge demand” for chips used in AI. Netflix Inc. led film and TV producers higher after striking Hollywood screenwriters reached a tentative new labor agreement. Jefferies downgrades weighed on Foot Locker Inc. and Nike Inc. with the broker pointing to looming consumer headwinds.

After the salvo of central bank decisions last week, traders are increasingly concerned that rising oil prices risk fanning inflation, which will make it difficult for policymakers to reduce rates anytime soon. Hedge funds boosted exposure to oil on bets tightening supplies will stoke demand. West Texas Intermediate oil traded below US$90 a barrel in the afternoon session.

“There are several reasons to believe that the full impact from tighter monetary policy is still yet to take effect,” said Henry Allen, a strategist with Deutsche Bank. “As such, it will be some months before we can sound the all clear for the economy, not least given longer-term interest rates are still reaching new highs even now.”

Fed Bank of Chicago head Austan Goolsbee said it’s still possible for the U.S. to avoid a recession. “I’ve been calling that the golden path and I think it’s possible, but there are a lot of risks and the path is long and winding,” he said in a CNBC interview.

Two Fed officials last week said at least one more rate hike is possible and that borrowing costs may need to stay higher for longer for the central bank to ease inflation back to its two per cent target. While Boston Fed President Susan Collins said further tightening “is certainly not off the table,” Governor Michelle Bowman signaled that more than one increase will probably be required. 

Markets are having to contend with “the reality of regime change,” according to Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.

“Thus far, fixed income investors have paid the steepest price, but expensive stocks with valuations premised on low rates may be increasingly vulnerable,” she wrote in a note to clients. “Unlike other periods, when the rising tide of falling rates lifted all boats, adjusting to higher rates is likely to be an idiosyncratic affair favoring stock selection.”

A surge in oil prices and massive fiscal deficit are spurring losses in government debt, sending U.S. Treasury yields across the maturity curve to the highest levels in more than a decade. The Treasury 10-year yield may rise to 4.75 per cent before softer risk sentiment and tighter financial conditions push it lower into year-end, according to strategists at Bank of America Corp. 

A warning that a U.S. government shutdown would reflect poorly on America’s credit rating from Moody’s Investors Service did little to shift market sentiment Monday.

Meanwhile, fresh signs of concern for China’s property developers were highlighted after China Evergrande Group missed a debt payment and former executives were detained, adding to fears about its debt pile. That’s compounding concern that global growth will stall as the economic engine of China sputters.

Key events this week:

• Minneapolis Fed President Neel Kashkari in Q&A, Monday
• U.S. new home sales, Conference Board consumer confidence, Tuesday
• ECB’s Philip Lane speaks on monetary policy, Tuesday
• China industrial profits, Wednesday
• U.S. durable goods, Wednesday
• Eurozone economic confidence, consumer confidence, Thursday
• U.S. initial jobless claims, GDP, Thursday
• U.S. Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
• Eurozone CPI, Friday
• Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
• U.S. consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday
• ECB President Christine Lagarde speaks, Friday
• New York Fed President John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.4 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.5 per cent
• The Dow Jones Industrial Average rose 0.1 per cent
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.4 per cent
• The euro fell 0.6 per cent to $1.0593
• The British pound fell 0.2 per cent to $1.2212
• The Japanese yen fell 0.3 per cent to 148.82 per dollar

Cryptocurrencies

• Bitcoin fell 0.6 per cent to $26,337
• Ether was little changed at $1,591.89

Bonds

• The yield on 10-year Treasuries advanced 11 basis points to 4.54 per cent
• Germany’s 10-year yield advanced six basis points to 2.80 per cent
• Britain’s 10-year yield advanced seven basis points to 4.32 per cent

Commodities

• West Texas Intermediate crude fell 0.1 per cent to $89.92 a barrel
• Gold futures fell 0.6 per cent to $1,934.80 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Cecile Gutscher and Denitsa Tsekova.