US stocks retreat on soaring Treasury yields, robust US dollar

Stocks and equities worldwide were lower on Tuesday due to US 10-year Treasury yields staying close to 2007 highs, while fears of higher interest rates ate into appetites for riskier assets. The dollar index eased from a 10-month high but was still rising, and the Japanese yen bounced from an 11-month low as Japanese officials warned about a possible intervention in the currency.

US Treasury 10-year yields surpassed 16-year peaks touched in the previous session before pulling back while the yield curve flattened a bit. Wall Street’s major stock indexes followed Asian and European equities lower as investors continued to digest last week’s indication from the Federal Reserve that it would keep rates higher for longer than investors had previously expected.

Minneapolis Fed President Neel Kashkari said on Tuesday that he sees a “soft landing” for the U.S. economy as likelier than not, but also sees a 40% chance that the Fed will need to raise rates “meaningfully” higher to beat inflation.

Nervousness in the market was exacerbated by the prospects of a government shutdown. Republican-controlled House of Representatives are pushing to advance steep spending cuts this week, which could trigger a partial shutdown, furloughing hundreds of thousands of federal workers and suspending public services.

The Washington stand-off added to negative sentiment, along with rising oil prices and auto worker strikes that started in Detroit on Sept 14. As long as rates keep pushing higher, the market will be kept nervous until the core Personal Consumption Expenditures (PCE) print is due out on Friday.