NEW YORK (Reuters) - U.S. Treasury yields hit 10-month peaks as investors worried that China would slow U.S. government bond purchases, but they retraced to end nearly unchanged on Wednesday, and the S&P 500 stock index snapped its six-day rally.
The Bloomberg News report that China, the world’s biggest holder of U.S. Treasuries, could slow or stop buying the government bonds also pushed the U.S. dollar to a more than six-week low against the Japanese yen.
The dollar rose against its Canadian counterpart CAD= and Mexico's peso MXN= after a Reuters report said Canada increasingly believes that U.S. President Donald Trump will soon announce his intention to withdraw from the North American Free Trade Agreement treaty.
The NAFTA news alongside the report on China weighed on U.S. stocks, which have had a strong run so far in the new year. The Nasdaq also broke a six-day string of gains.
“The Chinese are applying pressure to the Treasury market just as the (Federal Reserve) is about to step away from being the buyer of last resort,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
Benchmark 10-year note US10YT=RR yields were last down to 2.558 percent, after peaking at 2.597 percent, the highest since March 15.
The yield curve between two-year notes and 10-year notes US2US10=TWEB was last flatter at 58.6 basis points, after steepening to 62.4 basis points earlier Wednesday.
Earlier, Germany’s 10-year bond DE10YT=RR yield hit its highest since the October European Central Bank meeting when policymakers first announced the extension of its bond-buying scheme.
A combination of factors has pushed global bond yields higher in recent weeks, with global growth and higher oil prices leading investors to speculate that the world’s major central banks might withdraw from their stimulus programme sooner rather than later.
On Wall Street, the Dow Jones Industrial Average .DJI fell 16.67 points, or 0.07 percent, to 25,369.13, the S&P 500 .SPX lost 3.06 points, or 0.11 percent, to 2,748.23 and the Nasdaq Composite .IXIC dropped 10.01 points, or 0.14 percent, to 7,153.57.
“The market has started on a very strong note this year. Right or wrong, you’re hearing an overwhelming bullishness from strategists suggesting that the market momentum move should continue as the year progresses, so you have a lot of money flowing into the market,” said David Katz, chief investment officer at Matrix Asset Advisors in New York.
“Today’s move was negative. It’s the first time basically in a year where people have any concerns about bonds possibly competing with stocks, so that’s where you had the early selloff,” he said, but the recovery from early lows points to the positive sentiment.
The pan-European FTSEurofirst 300 index .FTEU3 lost 0.32 percent and MSCI's gauge of stocks across the globe .MIWD00000PUS shed 0.05 percent.
In the foreign exchange market, the dollar JPY= touched 111.29 yen, its weakest since late November, but was last flat.
The dollar index .DXY fell 0.18 percent.
Crude oil prices settled near three-year highs after U.S. government data showed a drop in crude inventories and production, even as fuel inventories rose.
U.S. crude futures CLc1 settled at $63.57 a barrel, up 61 cents, or 1 percent, their highest settlement since December 2014. Brent crude futures LCOc1 settled at $69.20, up 38 cents. The session high for the global benchmark was $69.37, which was the highest since May 2015.
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Additional reporting by Saqib Iqbal Ahmed and Karen Brettell in New York; Editing by Nick Zieminski and James Dalgleish