Bond relief ebbs, stocks fall as investors question Treasury's rescue efforts

By Niket Nishant and Rae Wee

Aug 20 (Reuters) - A bond market reprieve appeared to be fading on Thursday as U.S. government bonds sold off and kept stocks under pressure, with investors questioning how effective the Treasury's support would be.

Yields on the 30-year U.S. government bond rose 3.05 basis points to 5.2235% after falling to 5.1765% earlier, a day after the Treasury's pledge to buy back more longer-dated debt. Yields move inversely to prices.

The moves were being closely watched to gauge the bond market's faith in the U.S. Treasury's ability to stem a rout that has sent shockwaves across multiple asset classes.

An MSCI index of global stocks fell for four consecutive sessions, its longest losing streak since March, before a 0.30% gain on Thursday.

"The buyback announcement is more of a band-aid than a panacea. But it is a reminder that the Treasury Department is paying attention and will do whatever it can to keep yields from getting too high too quickly," said Lawrence Gillum, chief fixed-income strategist for LPL Financial.

The benchmark 10-year yield rose 1.9 basis points to 4.6723%, following a 5 bps fall on Wednesday. Yields on government bonds in Germany and Japan, however, eased.

SOUR SENTIMENT WEIGHS ON STOCKS

The pan-European STOXX 600 and the S&P 500 futures slipped 0.20% and 0.14%, respectively. Higher bond yields typically pressure stocks.

Elevated oil prices also dampened sentiment. Brent crude futures rose 1.54% to $93.06 a barrel as disruption in the Strait of Hormuz showed few signs of easing. [O/R]

The decline in futures tracking the tech-heavy Nasdaq 100 index was more muted, helped in part by optimism towards AI.

"It's penny-wise, pound-foolish for tech companies to worry about where the yield curve is. The fundamental story for AI charges ahead regardless," said Marta Norton, chief investment strategist at retirement and wealth services provider Empower.

Tech firms cannot afford to stop their AI spending given the potential hit to their businesses if they fall behind, a dynamic that may limit the impact of bond market turbulence on AI stocks, she added.

In currency markets, the euro rose 0.13% to $1.1694, hitting its highest since May. The yen weakened 0.17% to $158.44.

The dollar index, which measures the U.S. currency against six major peers, was down 0.11% at 98.72.

Minutes of the Federal Reserve's latest policy meeting released on Wednesday showed that concern about inflation deepened, with "several" policymakers appearing ready to raise interest rates and "many" saying a hike in borrowing costs would be needed if inflation does not decline to the central bank's 2% target.

(Reporting by Niket Nishant in Bengaluru and Rae Wee in Singapore; Editing by Jamie Freed, Thomas Derpinghaus and Alex Richardson)