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Treasury Yields Higher As PMI Highlights Inflation Risk; Nasdaq Slides

Surging activity in Germany and the fastest pace of U.S. input price rises in a decade has Treasury yields on the rise again Tuesday.

U.S. Treasury bonds yields crept higher Wednesday, pulling tech stocks into the red and reserving earlier gains, after economic activity data showed input prices rising to the highest levels in a decade. 

The IHS Markit PMI reading for March, which tracks economic activity in the world's biggest economy, showed that the services sector is running at its fastest pace since July 2014. Factory output, the data indicated, eased modestly from February, but input prices surged to the highest levels since 2011 amid the ongoing rise in energy and commodity prices.

“Another impressive expansion of business activity in March ended the economy’s strongest quarter since 2014," said IHS's chief business economist Chris Williamson. "The vaccine roll-out, the reopening of the economy and an additional $1.9 trillion of stimulus all helped lift demand to an extent not seen for over six years, buoying growth of orders for both goods and services to multi-year highs."

“Producers were increasingly unable to keep pace with demand, however, due mainly to supply chain disruptions and delays," he added. "Higher prices have ensued, with rates of both input cost and selling price inflation running far above anything previously seen in the survey’s history.”  

Earlier Wednesday, a similar reading out of Europe showed factory activity in Germany, the region's largest economy, running at the fastest pace since records began in 1996, with optimism further fueled by a reversal of Chancellor Angela Merkel's decision to impose a five-day lockdown over the Easter break to tame the rising rate of coronavirus infections.

The data helped lift the U.S. dollar index, which tracks the greenback against a basket of its global currency peers, to a four-month high of 92.57 in early New York trading.

Benchmark 10-year Treasury note yields, meanwhile, edged to 1.65%, well shy of the January 2020 high of 1.75% reached last week but enough to clip gains for rate-sensitive tech stocks.

The Nasdaq Composite index was marked 0.5% lower as a result, while a jump in oil prices linked to a stranded container ship in the Suez canal, alongside the stronger-than-expected PMI reading, gave the Dow Jones Industrial Average am early 300 point gain.