Investing.com - The Australian stock market stumbled during Tuesday's morning deals, following an intensified rout in US Treasuries overnight. The financial markets are adjusting for a higher interest rate environment aimed at reigning in inflation, causing the Australian dollar to drop over 1%.
After the first 90 minutes of trade, the benchmark S&P/ASX 200 index was down by 1.5%, with all 11 industry sectors recording losses.
Market heavyweights like BHP Group Ltd (ASX:BHP), Rio Tinto Ltd (ASX:RIO), and Fortescue Metals Group Ltd (ASX:FMG) experienced declines of around 2% each, amid weakening iron ore prices.
Among energy companies, Woodside Energy Ltd (ASX:WDS), Karoon Energy (ASX:KAR), Santos Ltd (ASX:STO), and Ampol Ltd (ASX:ALD)led declines.
The downturn followed more hawkish rhetoric from the US Federal Reserve, as concerns mount that interest rates will need to rise to curb inflation. Michael Barr, the Fed’s vice chairman for supervision, and Fed governor Michelle Bowman both suggested that higher interest rates may be necessary for an extended period.
Yields on US Treasuries ranging from five to 30 years increased by 10 basis points overnight. The rate on the 10-year benchmark bond hit its highest since 2007, reaching 4.7%, and the 30-year topped 4.81%, the highest since 2010.
Goldman Sachs (NYSE:GS)' portfolio research team noted that markets are now implying approximately a 20% probability that the US 10-year yield will exceed 5% by the end of 2023.
BlackRock (NYSE:BLK) CEO Larry Fink also expects 10-year Treasury yields to surpass 5% as geopolitical shifts and supply chain disruptions contribute to persistent inflation.
For local investors, the day's focus is on Michele Bullock's first Reserve Bank of Australia board meeting as governor. Economists predict that policymakers will maintain the cash rate at 4.1 per cent, with the RBA's decision due at 2.30 pm AEDT.